May 22, 2024 09:18 GMT
Coty (Secured; Ba2 Pos, BB+ Pos, BBB- Stable) FV
CONSUMER CYCLICALS
€500m 3NC2 IPT 5% (to low5%s) (eqv. Z+187) vs. FV 4.3% (Z+120) **We have FV 70bps inside IPT & have a screen cheap on this deal. Reminder we already had a screen cheap on the Coty28s in secondary. We don't see much need to price the call structure on this new issue re. gross paydowns; plenty (including 28s) that it will take down into target 2x/IG levered.
- We've priced it tad outside of Dufry curve not on fundamentals but the 28s (YTW of 4.37%) shifting our FV higher/acting as a floor.
- 28s are pricing to ~3.5yr call right now at 4.37%/Z+125 but has the potential for a call as early as Sept 2025 at €102.875 (at 4.5%/Z+91 for 1.3yr duration).
- The '25 call option has (some) value for 28s mainly on refi to cheaper debt (our FV is 1.45% below 28s coupon). See our full notes below but Coty is guiding to gross paydowns (mainly though $1.1b asset sale next year) to target 2x leverage by end of CY25. That implies (on current earnings consensus) net debt will fall from $3.7b to ~$2.4b (-$1.3b reduction). Reminder this deal is leverage neutral.
- We see it taking down the single remaining €180m unsecured line first {AR860154 Corp} (at par) and then tackling the $1.4b maturity wall in Senior '26 debt (a dollar and € line). Both will be par callable after April next year and trade 0.5-1.5pts below that right now – i.e. nothing interesting.
- That gives plenty of room into 2x leverage target, but we don't rule out partial pay down on 28s or a refi into cheaper debt - latter seems likely here.
- We don't see the call structure (starting in year 2) in new 3Y having value on above; it will issue well below the 28s that have a 5.75% coupon and has the ‘26-maturity wall to tackle.
- Charts below (OAS, Yield & Z-spread). We have removed Tapestry/TPR lines that are skewed on M&A/call option risk - please see previous notes for RV on the curve. We have also removed single Levi 27s (Ba2/BB+; S) that trades well inside (investors may be eyeing early call on that line) and the Pandora 28s (tight/trades on H&M curve, mandate out for 6Y). Neither impact our FV.
- Notes on co, including financials; https://marketnews.com/coty-secured-ba2-pos-bb-pos...
Keep reading...Show less
408 words