European High-Yield Covenants Pushback Tracker: Successful Pushback in Kedrion 2029s Focuses on Reducing Value Leakage Risk, Introduces ‘J. Crew’ Blocker on IP Transfers

Plasma-derivative producer Kedrion issued $790 million 6.5% senior secured notes due 2029 on April 21. The proceeds of the bonds, together with a $75 million senior secured term loan A, will be used to repay the $865 million bridge facilities incurred to finance the acquisition and combination of Kedrion SpA. and Bio Products Laboratory by Permira.

The preliminary terms of the 2029s included a higher risk of value leakage compared to the group’s 3.375% senior secured notes due 2026 redeemed on Sept. 1, 2022. In addition, the 2029s did not protect investors from the risk of leakage of material intellectual property outside of the restricted group as they did not feature a J. Crew blocker.

Positively, concerns about the value leakage risk highlighted in our covenant analysis were addressed as investors pushed back. This resulted in a significant reduction of “Day 1” capacity for leakage to unrestricted subsidiaries to 63% of EBITDA from 112% of EBITDA and for shareholder payments to 21% of EBITDA from 42% of EBITDA.

Changes included:
 

• Removal of the $41 million/15% of EBITDA starter amount in the 50% consolidated net income, or CNI, build-up basket;

• A 0.5x turn reduction of the leverage ratio test applicable to the ratio-based restricted payment (to 2x from 2.5x);

• A 0.5x turn reduction of the leverage ratio test applicable to the ratio-based investment basket (to 2.5x from 3x for all investments, provided that investments in joint ventures remain subject to the 3x test);

• A 7% EBITDA reduction in the size of the general restricted payment basket (to $55 million/20% of EBITDA from $70 million/27% of EBITDA); and

• Removal of the similar business, JVs and unrestricted subsidiaries investment basket up to $81 million/30% of EBITDA.

A J. Crew blocker provision was also added.

In addition, the dividend-to-debt toggle allowing Kedrion to use available restricted payment capacity under the post-IPO dividends basket to incur debt was removed and the credit facilities basket reduced to $75 million plus $265 million/100% of EBITDA from $100 million plus $265 million/100% of EBITDA.

The updated covenant analysis for Kedrion’s 2029s is available HERE.

The latest EMEA Covenants Pushback Tracker can be found below. This tracker provides an overview of the range and scope of changes made to provisions seen in the European high-yield bond market since 2021. We hope the tracker can be a useful guide to investors in deciding what to push back on for future issuances.
 
The Tracker is based on data included in our Market Maker database. The statistics for 2021, 2022 and 2023-to-date included in the Tracker represent the percentage of instruments that featured the specific pushback item among all the instruments that received pushback in that year or period. Given the lighter volume of deals in 2022, statistics for that year are more sensitive to distortion. In most instances, the statistics suggest some identifiable trend, but a few instances showed movements that could be explained as much by the market as by data distortion. This is also applicable for the 2023-to-date statistics.

To learn how to track investor pushback on Market Maker, click HERE.

Contact us at questions@reorg.com with any questions on how to use this tool or if you have any suggestions on how to improve it further. You can help EMEA Covenants by Reorg publish this Tracker by sending across pricing supplements and final offering memoranda of the bonds you are interested in.

Disclosure: Reorg and Kedrion are both Permira portfolio companies.
 

Debt Covenant	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Ratio Debt Basket		15%		33%
Senior secured leverage ratio reduced	Douglas' 2026s		888 Holdings' 2027s (2028 FRNs)
Alternative net leverage ratio test reduced	Arxada's 2028s  Arxada's 2029s		Novolex's 2029s Novolex's 2030s
Credit Facility Basket		20%		33%		50%
"Free and clear" amount reduced	Modulaire's 2028s Modulaire's 2029s		888 Holdings' 2027s (2028 FRNs) Novolex's 2029s Novolex's 2030s		Kedrion's 2029s
Ratio test reduced	Arxada's 2028s Arxada's 2029s		Novolex's 2029s Novolex's 2030s 888 Holdings' 2027s (2028 FRNs)
Secured ratio test for incurrence of junior secured debt (previously FCCR or net leverage ratio) introduced	Modulaire's 2028s Modulaire's 2029s
Deletion of FCCR for junior secured debt incurrence	Arxada's 2028s Arxada's 2029s
Non-Guarantor Debt Cap		5%		33%
Extent of non-guarantors' debt reduced	CGG's 2027s		888 Holdings' 2027s (2028 FRNs) Novolex's 2029s Novolex's 2030s
Contribution Debt / Dividend-to-Debt Toggle		30%		22%		50%
Dividend-to-Debt Toggle (Pick Your Poison / Available RP Capacity): capacity reduced / deleted	Arcaplanet's 2028s Modulaire's 2028s Modulaire's 2029s Multiversity's 2028s Arxada's 2028s Arxada's 2029s		Novolex's 2029s Novolex's 2030s		Kedrion's 2029s
Contribution Debt: 200% capacity reduced to 100%	Modulaire's 2028s Modulaire's 2029s Multiversity's 2028s
General Debt Basket		15%		22%		50%
Size reduced	Iliad's 2026s / 2028s Modulaire's 2028s Modulaire's 2029s		Novolex's 2029s Novolex's 2030s		Kedrion's 2029s
Debt Reclassification				11%
Ability to reclassify outstanding debt under senior credit facilities removed			Fedrigoni's 2027s

 

Calculation Flexibilities	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Cost Savings/Synergies		40%		56%
Time limit introduced	Arcaplanet's 2028s (24 months) Arxada's 2028s (24 months) Arxada's 2029s (24 months) Modulaire's 2028s (24 months) Modulaire's 2029s (24 months) Marcolin's 2026s (18 months) Multiversity's 2028s (24 months)		Kane's 2027s (24 months) Novolex's 2029s (24 months) Novolex's 2030s (24 months)
Cap introduced	Multiversity's 2028s (25%) Modulaire's 2028s (25%) Modulaire's 2029s (25%) Marcolin's 2026s (25%) Iliad's 2026s / 2028s (20%) Arcaplanet's 2028s (25%) Arxada's 2028s (25%) Arxada's 2029s (25%)		Kane's 2027s (30%) Novolex's 2029s (25%) Novolex's 2030s (25%)
Cap reduced			Biofarma's 2029s (FRNs) (from 25% to 20%)
Cap extended to cover additional transactions			888 Holdings' 2027s (2028 FRNs)
Time limit extended to cover additional transactions			888 Holdings' 2027s (2028 FRNs)
Addbacks for revenue related synergies removed	Iliad's 2026s / 2028s
Ratio Calculation Flexibilities		20%		33%
Carve-out for revolving debt amended and limited only to debt incurred for working capital purposes	Arxada's 2028s Arxada's 2029s
Carve-out for revolving debt for financing working capital removed	Golden Goose's 2027s Iliad's 2026s / 2028s		888 Holdings' 2027s (2028 FRNs) Novolex's 2029s Novolex's 2030s
"Super-grower" / "High-watermark" basket		15%		11%
Removed	Advanz Pharma's 2028s Modulaire's 2028s Modulaire's 2029s		Kane's 2027s
Carry-Forward / Carry-Back of baskets				11%
Carry-back removed			888 Holdings' 2027s (2028 FRNs)

 

Permitted Collateral Liens / Permitted Liens	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
General Permitted Liens Basket				33%
Size reduced			888 Holdings' 2027s (2028 FRNs) Novolex's 2029s Novolex's 2030s
Ratio Tested Permitted Collateral Liens / Permitted Liens				33%
Ratio-capped Permitted Collateral Liens / Permitted Liens: Ratio test reduced			888 Holdings' 2027s (2028 FRNs) Novolex's 2029s Novolex's 2030s

 

Restricted Payments	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Builder Basket		25%				50%
Starter amount removed	Arxada's 2028s Arxada's 2029s Modulaire's 2028s Modulaire's 2029s				Kedrion's 2029s
Zero floor on negative CNI removed	Iliad's 2026s / 2028s
Ratio-Capped Restricted Payments Basket		25%		33%		50%
Default / Event of Default for use of Available Amount tightened	Modulaire's 2028s Modulaire's 2029s
Ratio test reduced	Modulaire's 2028s Modulaire's 2029s Arxada's 2028s Arxada's 2029s Advanz Pharma's 2028s		Novolex's 2029s Novolex's 2030s Fabbrica Italiana Sintetici's 2027s		Kedrion's 2029s
Ratio test type changed	Arxada's 2028s (from secured leverage ratio test to net leverage ratio test) Arxada's 2029s (from  secured leverage ratio test to net leverage ratio test)
Ratio-Capped Subordinated Debt Payments Basket		10%
Ratio test reduced	Arxada's 2028s Arxada's 2029s
Ratio test type changed	Arxada's 2028s (from secured net leverage ratio test to net leverage ratio test) Arxada's 2029s (from secured net leverage ratio test to net leverage ratio test)
Public Offering Basket		5%		10%
Capacity based on “sum of % of offering proceeds and IPO Market Cap / Market Cap arm” removed	Iliad's 2026s / 2028s
Other Restricted Payment Baskets		15%
RP basket for Specified Asset Sale	Modulaire's 2028s  Modulaire's 2029s
Unrestricted Subsidiaries Spin-off basket removed	CGG's 2027s

 

Permitted Investments	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
General Investments Basket				11%
Size reduced			888 Holdings' 2027s (2028 FRNs)
Ratio-capped Investments Basket		15%		22%		50%
"No worse" ratio test for investments removed			Novolex's 2029s Novolex's 2030s
Alternative 2x FCCR ratio-based investments basket removed	Arxada's 2028s Arxada's 2029s
Ratio test reduced	Arxada's 2028s Arxada's 2029s Advanz Pharma's 2028s				Kedrion's 2029s
Other Permitted Investment Baskets				11%
Size reduced			888 Holdings' 2027s (2028 FRNs) (JVs investment basket)
Unrestricted Subsidiaries Investments Basket		5%
Removed	Iliad's 2026s / 2028s
J. Crew Blocker		10%				100%
Introduced	CGG's 2027s Advanz Pharma's 2028s				LimaCorporate's 2028s Kedrion's 2029s

 

Asset Sales	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Cash / Cash Equivalents Requirement		5%
75% Cash / Cash Equivalents requirement introduced	Iliad's 2026s / 2028s
Asset Sale (or Asset Disposition) definition		10%
De minimis amount threshold decreased	Elior's 2026s
Carve out for disposal of Unrestricted Subsidiaries removed	CGG's 2027s
Application of Proceeds				11%
Option to apply for restricted payments deleted			888 Holdings' 2027s (2028 FRNs)
Time Period for Application of Proceeds		10%		22%
Time period reduced	Arxada's 2028s Arxada's 2029s		Novolex's 2029s Novolex's 2030s
Leverage-based grid		15%		33%
Grid Deleted			888 Holdings' 2027s (2028 FRNs) Novolex's 2029s Novolex's 2030s
Ratio test for grid reduced	Douglas' 2026s Douglas' PIK 2026s Advanz Pharma's 2028s

 

Change of Control	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Portability		25%		22%		50%
Portability: Ratio test reduced	Multiversity's 2028s Arcaplanet's 2028s		Fabbrica Italiana Sintetici's 2027s
Ratio-Based Portability: Removed	Ideal Standard's 2026s Golden Goose's 2027s Marcolin's 2026s		Biofarma's 2029s (FRNs)		LimaCorporate's 2028s
"Permitted Holders"		5%
Definition / concept removed	CGG's 2027s
Public Holding Company Exception				11%
Public Holding Company Exception trigger: Removed			888 Holdings' 2027s (2028 FRNs)

 

Redemption	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Non-Call Period				11%
Non-call period extended			Renta's 2027s
10% at 103% Redemption		5%		11%
Annual redemption of 10% of the notes at 103% during make-whole period removed	Lottomatica's PIK Toggle 2026s		888 Holdings' 2027s (2028 FRNs)
Equity Claw		5%		11%
Equity Claw redemption deleted	Iliad's 2026s / 2028s		Renta's 2027s
Optional Redemption				11%
Par redemption period changed			Renta's 2027s
Special Mandatory Redemption		5%
Special Mandatory Redemption introduced	Multiversity's 2028s

 

Credit Support	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Guarantees		5%		11%
Release of guarantees upon achieving investment grade status removed			888 Holdings' 2027s (2028 FRNs)
New guarantors added	Advanz Pharma's 2028s
Security		15%		22%
Consent threshold for security release increased			888 Holdings' 2027s (2028 FRNs)
Additional security provided	Multiversity's 2028s Arxada's 2028s Arxada's 2029		WFS' 2027s

Reporting / Voting Provisions	2021 HY Bonds	2021 Pushback Frequency	2022 HY Bonds	2022 Pushback Frequency	2023 HY Bonds	2023 Pushback Frequency
Investor Call Requirement		5%		11%
Investor Call Requirement introduced	Iliad's 2026s / 2028s		888 Holdings' 2027s (2028 FRNs)