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Vue Selling Bonds to Fund LBO as Credit Risk Falls in Europe

Vue Entertainment Ltd. is meeting investors for a bond sale to fund its leveraged buyout as the cost of insuring European corporate debt against losses declines.

The cinema operator plans to sell the equivalent of 550 million pounds ($820 million) of notes in euros and pounds to support its acquisition last month by Ontario Municipal Employees Retirement System and Alberta Investment Management Corp., according to a person familiar with the plan, who asked not to be identified because the details are private. Corporate credit risk fell in Europe to the lowest in more than two weeks.

Confidence is returning to credit markets after the European Central Bank and the Bank of England both indicated on July 4 they would keep interest rates low for longer than investors expected. The cost of protecting corporate bonds fell with the Markit iTraxx Crossover Index of credit-default swaps on 50 speculative-grade companies dropping as much as 11 basis points today to 444 basis points, the lowest since June 19.

“It’s going to be quite a volatile environment for a while,” said Martin Reeves, head of high yield at Legal & General Investment Management, responsible for about $2.45 billion of assets. “In a volatile environment, just getting the deal done is the focus rather than securing the low yield. There will be good weeks and bad weeks for issuance.”

Junk Sales

Non-financial junk bond issuance reached a record 37.2 billion euros ($48 billion) this year, according to data compiled by Bloomberg. It slowed to the least since March 30 last week following a global selloff sparked by the Federal Reserve’s plans to scale back quantitative easing.

An external spokeswoman for London-based Vue, who asked not to be identified citing company policy, said she wasn’t immediately able to comment on the financing.

Vue, which operates in countries including the U.K., Germany and Portugal, will sell seven-year, fixed-rate bonds in pounds that may be redeemed by the company after three years and seven-year, floating-rate notes in euros that are callable after one year through its Vougeot Bidco Plc unit, according to the person. Its two Canadian owners will also fund the deal using their own cash.

“There has been a trend over the past 18 months or so for companies to use bonds as an alternative to loans or in combination with loans for LBOs,” said Torben Ronberg, head of loans at ECM Asset Management Ltd. in London. “Private equity is behind an increasing part of the European high-yield market.”

Debt Repayment

Vue’s proposed bonds have been assigned a provisional B2 rating by Moody’s Investors Service, five levels below investment grade.

Some of the proceeds will be used to repay 386 million pounds of Vue’s bank facilities, according to bond marketing materials seen by Bloomberg News. Doughty Hanson & Co.’s buyout of the company in 2010 was backed by 300 million pounds of loans, data compiled by Bloomberg show.

Vue obtained about 147 million pounds of loans last year to fund acquisitions, a person familiar with the situation said at the time.

The volume of high-yield bonds issued by non-financial companies dropped below the year’s weekly average of 1.5 billion euros for an eighth consecutive week last week, according to data compiled by Bloomberg. The average yield investors demand to hold the debt declined to 6.06 percent after reaching a seven-month high of 6.30 percent on June 25, Bank of America Merrill Lynch data show.

High-Yield Pipeline

Also in European credit markets, Findus Group Ltd., a British frozen food producer that underwent a debt restructuring last year, plans to sell the equivalent of 410 million pounds of junk bonds in pounds, euros and Swedish kronor, according to a person familiar with the plan. The five-year notes, which may be rated six levels below investment grade at B3 by Moody’s, will be callable after two years, the person said.

Continental AG (CON), Europe’s second-largest auto-parts supplier, plans to sell at least 500 million euros of five-year bonds to help finance the early redemption of higher interest debt, it said in a statement today. The Hanover, Germany-based manufacturer will buy back 1 billion euros of securities paying a coupon of 7.5 percent, according to the statement.

Kering SA, the Paris-based company that owns the Gucci brand, raised 500 million euros in its first bond sale since April 2012. The seven-year notes were priced to yield 98 basis points more than the benchmark mid-swap rate.

Adecco SA (ADEN), the world’s biggest supplier of temporary workers, sold 400 million euros of bonds due 2019 that were priced to yield 135 basis points more than swaps. Part of the proceeds will be used to refinance the Glattbrugg, Switzerland-based company’s debt maturing in 2014, a person familiar with that offering said.

To contact the reporter on this story: Katie Linsell in Madrid at klinsell@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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