PureGym gets rid of a troubled loan thanks to the boost from the Covid vaccine
Banks that appeared poised to take major losses on a long-standing debt sale for PureGym received unexpected support from this week’s Covid-19 vaccine breakthrough, which has boosted demand for the biggest chain’s junk bonds UK exercises and has helped lenders get away with virtually unscathed.
Barclays, Jefferies and other lenders took out € 445 million in debt to support PureGym’s acquisition of rival Fitness World in January, planning to shift the exposure in the bond market. But banks retained the bridging loan of the deal for most of a year after investors shunned consumer-oriented companies whose revenues have been wiped out by the pandemic and nationwide lockdowns. .
PureGym’s banks kicked off the long-awaited bond sale on Monday morning, even as a second nationwide foreclosure closed gyms across England, indicating they would sell the debt at a steep discount of less than 90 cents against the euro.
In LBOs, banks guarantee borrowers a certain interest rate on the debt. If investors demand a higher yield, lenders must sell bonds at a discount and incur a loss.
But a few hours after the deal was launched, US pharmaceutical company Pfizer and Germany’s BioNTech announced that their Covid-19 vaccine had proven to be over 90% effective, sending the markets are soaring and giving hope for a rebound in the leisure sector sooner than expected.
PureGym rode the wave of optimism, receiving more than € 1.3 billion in investor orders, and sold debt at 95 cents on a euro on Tuesday, marking a happy loophole and significantly smaller losses for its banks.
“We were able to take advantage of a good market window to price the deal,” said Stephen Smith, head of leveraged finance syndicate Emea at Barclays. “It is clearly a name, like many others, that has been impacted by the context of Covid.”
One fund manager described the timing of the trade as “very lucky” as news of a vaccine breakthrough drastically improved prices.
“[The initial deal] was taken out at the height of the market when no one had heard of Covid, ”he said.
The PureGym debt issue is one of the latest in a wave of alleged “suspended” bridging loans on bank balance sheets, including transactions that were written before the coronavirus pandemic upset global economies. While banks were initially prepared for heavy losses on many of these transactions, the strong support of central banks to financial markets helped them sell most of this debt to little or no loss.
However, some more modest LBO deals are still pending, such as the buyout of around 450 million euros of private equity firm Permira from Italian sneaker brand Golden Goose.
PureGym bonds offer investors an annual coupon of 5.5%, which equates to a yield of almost 6.9% at their discount, and mature in 2025.
Although the company’s private equity owner Leonard Green & Partners injected £ 100million into the business in September, PureGym still has a B minus credit rating, just a cut above the rating. very risky triple C.
Just under half of the combined PureGym and Fitness World locations around the world were open on November 9, according to an investors document.