CONSUMER CYCLICALS
- Phillip Morris will face a $220m loss in the 3Q and a total loss closer to a $1b on its 2021 acquisition of British Pharma Vectura. The numbers from this investment are not significant enough to be a credit mover. The fact it attempted to diversify that far out reflects its ambition to stay ahead of the decline in traditional combustibles.
- Suedzucker faces yet another profit warning. Floating perps moved with some delay; we would extend that caution to the senior 27s as well. Co is looking a tougher refi on the 25s now.
- Campari CEO made remarks that painted a bleak picture for the sector late last week. Insiders have told Bloomberg it was that alongside other issues that culminated in the board taking him out (vs. cited “personal reasons”). Regardless we see value in the 27s while keeping caution on the sector.
- JDE Peets equities come under pressure on EU not narrowing down guidelines for regulation that kicks in at the end of this year. We do wish the co was more diversified but are still biased to see value in the curve.
- Walgreen Boots pays a DoJ fine - every dollar matters for the co here - $107m leaving on this fine. Earnings ahead and will be a high beta event.
- Ryanair’s O’Leary continues to flip-flop on air-fare comments; latest are positive on August conditions.
- Wizz Air CEO is blunt about how it will enter the long-haul market with its new A321 XLR’s. We are more interested in the current short & medium-haul profitability being managed in the face of the ongoing GTF issues. We are still skewed to see value in the €26s.
- General Mills We wouldn’t rule out small supply for bolt-on M&A, earnings still point to volume declines, leverage headroom will protect it from rating action for now.
- FedEx earnings produced a surprising amount of beta in credit today – we don’t see rating risk and don’t see the curve as particularly rich.
Event Driven Movers
- DSV may still be facing competition from CVC according to Bloomberg-seen letters addressed to Deutsche Bahn. We don’t place much value on reversing the deal now, noting we saw similar leaked letters arguing before the decision.
- Playtech sells its consumer arm, Snai, to Flutter for €2.3b. We see it as credit negative for Playtech and neutral for Flutter - latter will have issuance needs now.
- Tapestry updated probabilities to start the week which remain a coin-toss. Closing arguments are scheduled for the 30th of Sept with a ruling is expected in late Oct. to early Nov. A win for TPR/CPRI should clear the way for bonds to price out most of the 101 SMR risk.
- Updated M&A watchlist (start of the week)
Primary (fundamentals linked)
- Priced: APRR (NR/A-/A) 9Y at +93 (8bp NIC), CCEP (Baa1) 7.5Y at +98 (8bp NIC) and BUBBID (B2/B) 7NC3 Fixed at 6.5% (OAS+405) alongside a 7NC1 FRN.
- Mandates: Bunzl (NR/BBB+) 7.5Y and Kesko (unrated) long 5Y
Rating Actions
- VFC (Ba1 Stable/BBB- Neg); Moody’s with a 1-notch downgrade into HY. We have been warning timing is wrong on VFC ever since the last earnings on high possibility of rating action and beta to macro. Levels are now setting us up for an interesting earnings release in late October.
- DSV (A3/A- Neg); S&P moves to outlook negative – somewhat unexpected. Still its concerns are mainly around the margin dilution – one equities seem to not share. Moody’s also commented while staying unchanged.
- Playtech (Secured; Ba2/BB CW Neg); Moody’s stays put on Ba2 Stable outlook despite the €2.3b in cash and echoes us in seeing the divestiture of half the business as a credit negative.
- Flutter (Ba1/BBB- Pos/BBB); Fitch stays put after $2.95b of acquisitions over the last week. It somewhat echoes our faith in management strategy but unlike us does not question leverage targets. We expect ~$1.5b in supply and regardless are biased to see value in the €29s.
- Poste Italiane (Baa3/BBB); S&P comments on the Italian government’s intention to trim its stake. As expected not a mover and could be a positive at Moody’s if it continues divesting in years ahead.
- Coty (Secured: Ba2 Pos/BBB-/BBB-); S&P with a 1-notch upgrade welcoming Coty to IG. As S&P flags co has shown consistency in delivering on guidance and planned deleveraging assisted through its disciplined earnings growth. New 27s have traded any HY discount away - we will need to wait for supply which may be some time away.
- Boparan (Secured; Caa1 Pos/B- CW Pos/B- CW Pos); Fitch moves to CW Pos and similar to S&P expects refinancing soon.
- Burger King France (Secured; B3/NR); S&P withdraws rating on the new 30s at request of the company.
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