Europe Junk Borrowers Rush to Refinance Before Brexit Vote

  • Altice, Cemex look to replace borrowings as costs fall on ECB
  • Looming U.K. referendum could shutter risky debt markets

Junk-rated companies in Europe are hurrying to refinance debt, locking in borrowing costs at one-year lows amid concerns that a U.K. referendum on European Union membership will paralyze markets.

Leveraged-loan borrowers are poised to raise more money in euros this week for refinancing than in the whole of May, according to data compiled by Bloomberg. The amount amassed for repaying old debt from selling high-yield bonds is on track to be equal to about two-thirds of comparable sales last month.

Companies including Altice SA and Verisure Holding AB have entered the market as the start of corporate-bond purchases by the European Central Bank on Wednesday has driven down borrowing costs across the continent. The window may prove short-lived as banks including Goldman Sachs Group Inc. have said a June 23 vote in favor of a Brexit could roil European markets and endanger economic growth.

“It’s possible that uncertainty will rise as we approach the Brexit referendum,” said Colm D’Rosario, a money manager in London at Pioneer Investment Management Ltd., which oversees about 219 billion euros ($250 billion). “Issuers won’t want to wait until then.”

Companies may sell about 2.5 billion euros of leveraged loans and at least 2.6 billion euros of high-yield bonds for refinancing this week, the Bloomberg data show.

Verisure, Altice

Security-alarm maker Verisure raised a 1.16 billion-euro leveraged loan on Monday, the third-largest deal in the single currency this year. The funds were used to replace a similar-sized loan signed last year. Telecom giant Altice and affiliate Numericable-SFR are offering 750 million of loans to replace term loans maturing in 2022.

Unit4 is seeking a 230 million-euro loan to repay existing facilities, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified.

“The current market conditions are favorable and as a consequence we have taken the opportunity to revise our structure,” said Ray Leclercq, the Dutch software company’s chief financial officer. “It is regular practice for us to review our capital structure and optimize it as appropriate.”

French packaging maker Verallia also plans to refinance existing debt, according to a separate person. A company spokesperson couldn’t immediately be reached for comment on funding plans.

Recap Reopens

Norwegian technology-services provider Evry ASA is separately set to complete the first dividend-recapitalization loan in euros in two months. It is raising a total of 275 million euros in different currencies, which will be added onto existing loans, a person said. The company, owned by Apax Partners LLP, will use some of the money to pay dividends to shareholders, the person said. Officials at Evry weren’t immediately available for comment on the loan.

Finnish papermaker Stora Enso Oyj and Irish phone-services provider Eircom have both sold high-yield bonds to refinance debt this week. Power generator ContourGlobal LP is marketing 550 million euros of 2021 notes to repay $500 million of notes due 2019.

Cement maker Cemex SAB is selling 400 million euros of 4.625 percent eight-year notes to repay debt, said a person familiar with the matter. Calls and an e-mail to the Mexican company’s media-relations office about the bond sale weren’t immediately answered.

Tumbling Yields

The average yield that investors demand to hold sub-investment grade bonds in euros has fallen to 4.64 percent, according to Bank of America Merrill Lynch Index data. Yields have tumbled because the ECB’s move to start buying investment-grade corporate bonds is driving investors into riskier assets.

“The ECB announcement is creating a roll-down effect,” said Paul Suter, a London-based fixed-income trader at ECM Asset Management, an investment team within Wells Fargo Asset Management, which oversees more than $480 billion. “It is forcing money down into lower-rated credits, even though they aren’t directly buying high-yield bonds.”

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