Algeco : Issuance Focus

The refinancing programme includes the issue of five-year senior secured bonds of € 1.12bn (February 2023), which will be rated B2/B- (and B+ by Fitch), and  €295m senior unsecured bonds due in five a half years (August 2023), which will be rated Caa1/CCC (and CCC+ by Fitch). The senior secured notes should be split into three tranches (Fixed EUR + FRN EUR + Fixed USD), while the unsecured note should be in USD only (initially a tranche in EUR was envisaged).Given a more nervous bond market last week, marketing has been extended to today, and the price-talk seems a little more generous vs. price-talk proposed in recent weeks on the market. The expected yields are as follows: - Senior secured Fixed in euro (B2/B-): 6.50%/6.75% - Senior secured FRN in euro (B2/B-): E+600/625bp- Senior secured Fixed in US dollar  (B2/B-): 8.0%- Senior unsecured in US dollar (CCC/Caa1): 10%By comparison, in recent weeks, Selecta (B3/B) placed € 1.3bn of 2024 bonds (six years) in several tranches. The fixed-rate note in euro was priced at 5.875% (vs. price-talk: around 6%) on the January 19. Nordex (B3/B-) issued a first bond of € 275m due in five years (2023) at 6.5% on the January 26. The price of these two bonds declined last week. Regarding other single-B notes in the secondary market, current yields (expect “distressed” case) are in the region of 5% to 6%.We have a fairly cautious opinion on the issuer, hence our Stable credit rating based on its "B-" rating. The refocusing on European activities (which we think is buoyant and in which the group is by far the no. 1) is a good thing, as well as its debt reduction after the planned financial restructuring. That said, leverage remains high and management will have to demonstrate its ability to manage the group more cautiously now. The ratings by Moody's (B2/stable) and Fitch (B/stable) factor in deleveraging targets within two to three years, which has yet to be proved in our opinion. S&P has a more conservative approach (rated the group B- and does not anticipate deleveraging for now) which seems more justified to us. We do not know if the investment will go well given the increasingly nervous market we are seeing these recent days, while it is a significant size to absorb (€ 1.4bn in total, we still have no details for the euro-denominated portion). The proposed premium (which could even be increased given the market weakness this morning) may attract investors seeking yields. The 2018 and 2019 bondholders will also be encouraged to reinvest to ensure the proper repayment of their securities. >