Financing in brief top news 4

Ineos plans to issue up to €250m of additional second lien debt if it can secure consent from its lending group. Merrill Lynch is lined up to run the deal.

The new second lien deal, which requires a 100% acceptance rate from lenders, would be used to buy back some of the 7.875% euro-denominated senior notes and 8.5% US dollar senior notes that the company issued in January of this year. The buyback would be in the open market.

Ineos’s current structure includes a €400m 9-1/2-year second-lien term loan D, which pays 375bp over Euribor and is non-call for the first year, then callable at 102 in year two, 101 in year three and thereafter at par.

Ineos issued €7.42bn of secured bank debt in January, closely followed by the €2.355bn bond deal. The sponsors’ decision to increase the proportion of senior to subordinate debt is understandable given the quite different treatment they have received in the secondary markets, with the bond performing particularly poorly during the recent slump.

Although the poor response to the bond was partly due to the tight pricing and unexpected tranche split, its recent malaise is also due to the fact that the bond’s size and liquidity has made it a natural benchmark for traders wishing to short the market.

News of the second-lien issue had a significant effect on the bonds’ secondary performance, causing them to trade up immediately by around a point to break the 95 offer level and to reach 96 by the end of the week.

By contrast, the loan paper has remained comfortably above par on all tranches, despite the initial wrangles over settlement. The loan is now trading just north of 101.

At the same time, Ineos is seeking consent to use a share-for-share exchange to consolidate its hitherto independently controlled subsidiaries Ineos Chlor and Ineos Vinyls at holdco level.

Should the required two-thirds majority be obtained, the move is expected to produce significant synergies, leading to a small reduction in overall leverage.

Ineos is also requesting consent to make changes to the Ineos Vinyls senior notes, which traded up to 101-1/4–102-1/4 on speculation that a consent fee could be paid to reach the required consent level of 50%.

The remainder of Ineos structure comprises a €1.57bn seven-year amortising term loan A at 225bp, a €1.775bn eight-year bullet term loan B at 225bp/250bp (US$/E) and a €1.775bn nine-year bullet term loan C at 275/300bp (US$/E), a €1.3bn seven-year borrowing base facility at 225bp, which is likely to be refinanced through a long-term receivables facility, and a €600m seven-year revolver at 225bp. Leverage is 2.8x through the senior and 4.3x total net debt to Ebitda.