European Companies’ Wave of Debt Cost-Cutting Starts to Fade

(Bloomberg) -- Sub-investment grade companies seeking to cut their borrowing costs or push out maturities may have to wait a little longer as the window of opportunity appears to be closing.

Germany-based industrial gas producer Messer Industries, and British carmaker Jaguar Land Rover Automotive Plc ditched their plans to reprice or refinance their debts as the coronavirus roiled credit markets. Drugmaker Atnahs Pharma UK Ltd also decided against a similar transaction, according to people familiar with the deal who were not authorized to speak publicly.

Until recently, companies had been taking advantage of strong investor demand to cut their financing costs. But the latest moves suggest that the trend might be reversing. As unease about the disease continues to grow consultancy firm AlixPartners and fire-equipment maker Minimax Viking are awaiting investor replies for their own repricings on Wednesday.

“Unless you absolutely have to refinance, then you don’t need to come out to the market,” said Greg Venizelos, senior credit strategist at AXA Investment Managers, which manages 482 billion euros ($524 billion) across the fixed-income space.

Renewed concerns over the accelerating spread of the virus have extended to the leveraged finance markets this week, with high-yield bonds and loans taking a hit. The Markit iTraxx Europe Crossover index of credit-default swaps on high-yield companies rose to its highest since late August, while the S&P European Leveraged Loan Index is hovering around the lowest since December.

Messer’s decision to hold off on repricing its $2.8 billion cross-border financing signals that more European issuers may follow suit. A number of bankers and lenders said they expect such transactions to slow down if the risk-off sentiment in markets persists.

Still, some issuers have taken a chance. A new 1.1 billion euro loan from British chemicals company Inovyn Chlorvinyls Ltd allocated on Tuesday, albeit at the wide-end of the guided loan price.

Nearly 19 billion euros ($20.7 billion) in loan repricings and refinancings have come to the European market this year, handing investors lower yields as spreads for single B-rated issuers dropped to 379 basis points over Euribor in the three months through end-January, below the 413 basis-point average from the fourth quarter, according to Bloomberg data.

--With assistance from Ruth McGavin and Laura Benitez.

To contact the reporter on this story: Tatiana Darie in London at tdarie1@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Bruce Douglas

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