By Robert Smith
LONDON, Oct 21 (IFR) - Daisy called off an attempt to issuea sterling high-yield deal on Friday, in the latest sign ofwaning UK investor appetite for riskier debt in challengingsectors.
The UK company threw in the towel on the debut bond afterfour days of marketing the B2/B rated £385m fixed andfloating-rate notes, as cautious investors demand higher yieldsthan the telecoms and IT services firm was willing to pay.
While growing concerns around the likelihood of a so-called"hard Brexit" have made sterling deals more challenging, theEuropean high-yield market has seen a growing resistance toriskier deals in any currency.
France's Verallia pulled a 500m PIK dividend deal last weekfor example, after investors objected to its structure andaggressive use of proceeds.
Leads began whispering Daisy's fixed-rate tranche at 8.50%area, but by Friday investors demanded wider yields than thecompany was willing to pay, according to a lead banker.
"We had a deal there at 8.75-9%," he said. "But theircurrent debt stack (costs) 6.8%, so a new deal at 8.50% wasalready stretching the elastic for them."
Daisy also sounded out investors on a bond in late 2014. JPMorgan arranged the meetings although a deal never came tofruition.
"There's a real business here, don't get me wrong, but it'sone that's tricky for a number of reasons," an investor told IFRon Thursday.
"Brexit is happening sure, but that's not my main concern.This is a business model that needs to make acquisitions tostand still. And I think there are very low barriers to entry."
Daisy sells converged telecom and IT services to small andmedium sized businesses, and has acquired a number ofcompetitors in recent years to grow its business. The bond'scovenants would have given it capacity to incur additional debtto fund planned future acquisitions, with management guiding fortwo-to-three M&A deals a year, according to investors thatattended the roadshow.
The banker said that this acquisitive business model meantsome raised concerns around the difficulty distinguishingbetween organic and inorganic growth in the company's accounts.
"If they get a little bit more operating performance and areable to clarify their growth figures a bit more, I think there'sa deal to be done at a better price in future," he said.
STERLING STRUGGLE
This the latest sign of slackening demand for sterlinghigh-yield bonds. A slew of recent deals from UK debtpurchasers, which buy defaulted loans looking to profit fromcollecting on them, have traded particularly badly.
The banker said that while renewed worries around Brexit mayhave made some investors more reticent to buy Daisy's deal, thebiggest issue for many was a hefty pipeline of expected dealsfrom UK issuers.
These include several M&A financings, with Ladbrokes andNewDay both eyeing sizeable deals in sterling.
A banker away from the deal said Daisy's failure to launchwas also indicative of an increasingly two-speed market forhigh-yield debt.
"Straightforward credits are pricing extremely well, whiletricky credits aren't," he said. "People are assigning amaterial credit premium to challenging stories."
This has not deterred other companies in challenging sectorsfrom looking to tap the high-yield market, however.
Spanish gaming company Codere on Friday announced plans toissue a 775m-equivalent deal in euros and dollars, havingsounded out investors during "credit update" meetings earlierthis month.
The company emerged from a messy restructuring in Aprilafter a multi-year stand-off with creditors and has substantialexposure to emerging markets such as Argentina. (Reporting by Robert Smith, editing by Alex Chambers)
