Befesa Medio Plans PIK Toggle Notes as Junk Borrowing Costs Fall

Befesa Medio Ambiente SA, a Spanish waste management company, started meeting investors for a debut bond sale in Europe as borrowing costs for speculative-grade companies decline.

The company, owned by private-equity firm Triton Partners, plans to issue five-year payment-in-kind toggle notes through its Bilbao (Luxembourg) SA unit, according to a person familiar with the matter. The average yield on junk-rated corporate bonds in euros fell 3 basis points to 4.5 percent, the lowest since May 30, Bloomberg bond index data show.

Private-equity firms have raised a record $18 billion of junk bonds in Europe this year to finance buyouts, as borrowing costs hold close to record lows and falling default rates reassure investors. That’s boosted demand for higher-yielding and riskier PIK notes, which allow borrowers to repay lenders with more debt.

“We hate leverage going up, we hate supply going up, we hate defaults going up and none of those things are happening,” said John Pattullo, who manages the equivalent of about $4.7 billion as head of retail credit at Henderson Global Investors in London. “We’re not super-bullish but it’s hard to be bearish.”

The trailing 12-month default rate for European companies fell to 3.3 percent at the end of September from 3.6 percent a year earlier, according to Moody’s Investors Service. The euro-area economy emerged from an 18-month recession in the second quarter and the European Central Bank last week reiterated its pledge to keep borrowing costs low.

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To contact the editor responsible for this story: Shelley Smith at

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