SPAC Merger Sees Europe Price Largest Green Junk Bond

Ardagh Metal Packaging’s sale of green junk bonds on Friday drew strong interest from investors seeking yield and environmental kudos, allowing it to increase the size of the offering to $2.8 billion.

The company is being spun off from Ardagh Group SA, merged with a blank-check company backed by billionaire financier Alec Gores and will be listed on the New York Stock Exchange. Some proceeds from the sale, originally set to be the largest green bond for Europe’s high-yield market, will be used to fund or refinance “green projects,” the company said in a statement on Thursday.

The deal should get more favorable pricing because of its green credentials, said Azhar Hussain, head of global credit at Royal London Asset Management. “The deal will also attract interest from investment-grade accounts who are moving down the market in search for better yields,” he said.

Ardagh, known for its innovative approach to selling debt, is combining two hot trends to raise the cash: environmentally friendly bonds and special purpose acquisition companies, or SPACs.

The once small-time glass-bottle maker in Ireland has grown into one of the world’s largest packaging companies, with Heineken, Perrier and Beavertown as customers. Favorable conditions in debt markets in recent years helped fund its expansion to the tune of about 8 billion euros ($9.8 billion) in loans and bonds since 2017.

Of the new sale, around $2.3 billion will go to Ardagh Group as payment for the Ardagh Metal Packaging business, with the balance used for general cooperate purposes, the company said. Ardagh Group will retain an 80% stake in the beverage-can unit.

The total sale, which will be split in four parts between dollars and euros, was increased by the equivalent of $150 million on Friday afternoon. The 450 million euros of senior secured notes are being marketed at a yield of about 2% and 500 million euros of unsecured notes at around 3%. The secured notes are rated rated BB, BB+, and Ba2.

Hot Market

The reflation trade, in which markets are pricing a coming economic rebound from the pandemic, is making higher-yielding debt even more attractive relative to investment grade assets.

Read More: European Junk-Bonds Rise to Records Amid Reflation Trades

The prospect of inflation over the horizon adds to the luster of shorter-dated high-yield, according to George Curtis, a credit analyst at TwentyFour Asset Management.​​

“Investment-grade spreads are inside 100 basis points and there is less margin for error if you get a rates move,” he said.

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