Morning Commentary: Euro market sees thin liquidity ahead of holiday weekend; Euro drive-bys eyed

By Paul A. Harris

Portland, Ore., Nov. 26 – Liquidity was thin in the European high-yield market on Wednesday, according to a London-based debt capital markets banker.

The junk market in Europe was taking its cue from the market in the United States, where many participants are preparing for an extended Thanksgiving holiday weekend, which will get underway following the Wednesday close, the banker said.

New Issue activity has been muted throughout November.

Cash flows to the dedicated high-yield funds in Europe have been mixed, but ongoing coupon payments combined with the thin new issue calendar have caused the buyside to see a substantial buildup of cash, the banker said.

Although a couple of drive-by deals from familiar European issuers are expected in the Dec. 1 week, activity in the European primary could remain somewhat muted for the remainder of 2014, the source added.

“People are focused on not making any mistakes before the end of the year,” the banker said.

That is serving to narrow the range of deals European accounts are willing to work on.

For example, the Waste Italia SpA 10˝% senior secured notes due November 2019 (B2//B-), which priced at 92.294 to yield 12 5/8% in a €200 million issue on Nov. 13, played primarily to hedge funds in the United States, even though it was a euro-denominated deal, the banker said.

Meanwhile, a shadow calendar of sizable European LBO deals is beginning to take shape, but bonds to help finance those transactions might not come until early in the new year.

A bond deal backing the spinoff of Germany’s Siemens Audiology Solutions to EQT Partners could come late this year or early next year, the banker said. Debt financing for the deal, expected to include €1.1 billion of bonds and bank loans, is coming via Deutsche Bank, Goldman Sachs and UBS.

A similar timeline is taking shape for an expected bond deal backing the acquisition of Switzerland’s SIG Combibloc Group by Onex Corp. The expected €3 billion of bond and loan financing could come late in 2014 or early 2015.

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