Insights/19 Jun 2014

How to orchestrate a EUR 430 million high-yield bond offering in eight weeks

Borenius advised Paroc Group on issuance of its EUR 430 million high-yield bond offering to international investors as part of the group’s refinancing. Borenius also assisted Paroc Group with a new EUR 60 million revolving credit facility.

Text Leena Koskenlaakso
Photos Paroc Group, Attorneys at law Borenius

Paroc Group is an international stone wool insulation producer.

BORENIUS FINLAND - Paroc Group is the leading manufacturer of energy-efficient insulation solutions in the Baltic Sea region. Headquartered in Finland, Paroc Group has production facilities in four countries, with sales offices across 14 countries. The Group is owned by a number of institutional investors.

In May 2014, Paroc Group managed to lock in a highly attractive, long-term, portable refinancing package involving a major EUR 430 million high-yield bond offering to international investors. The demand for bonds issued by Paroc Group was extremely strong, and the offering was heavily oversubscribed. Attorneys at law Borenius acted as the Finnish, Russian and Lithuanian counsel to the Group, while Cravath, Swaine & Moore LLP advised them with respect to US law.

“Borenius also assisted us on the Finnish, Russian and Lithuanian law aspects of a new EUR 60 million revolving credit facility. English law advice was provided by Macfarlanes LLP,” says Paroc Group’s finance director Joakim Flinck.

“We decided to go ahead with issuing the high-yield bonds because our current loans were expiring in 2015, and the market situation for high-yield bonds was very favourable. We estimated we could achieve good and flexible terms also price-wise. What’s more, we quickly saw that a new refinancing arrangement would enable the implementation of our strategy and business plan,” Flinck explains.

Superfast process

“Once we got the ball rolling, things started happening very fast. The process started in mid-March, and was completed by mid-May.”

“First, we selected the lead arrangers for the funding, as well as the legal advisors. After that, we applied for a credit rating for our company. The credit rating played a crucial role in the terms and price of the financing arrangement. The third step was compiling a 400-page document called offering memorandum based on New York legislation. Borenius assisted us with the documentation, and in collaboration with the bankers they oversaw the transferral of the security for our old loan to cover the new loan,” Flinck notes.

Next, Paroc Group’s management embarked on a European roadshow to market the bond to the investors. During the first week of May, they toured Helsinki, Stockholm, London, Amsterdam, Frankfurt and Paris, witnessing a massive interest in the offering.

“By 9 May we had received all offers, and the bond issuance was completed. It turned out the bonds were oversubscribed seven times. They were allocated to more than 200 international investors.”

“When you are a debut high-yield bond issuer working under a very tight schedule, it is very important to have the support of qualified and professional legal advisors,” Flinck points out.

Vesa Karvonen, director of legal affairs at Paroc Group, agrees wholeheartedly.

Partner Juha Koponen from Borenius

“We were very lucky to get Juha Koponen as our legal counsel. One of the best capital markets experts in Finland, he is also well-known abroad. By taking on the responsibility for the high-yield bond arrangements he made everything very easy for us. He does not use legal jargon, but speaks in a way that management can understand,” Karvonen says.

“Having bond funding that was successfully sold to the market provides us more visibility and gives us more room to negotiate our future. Both the funding operation and the investor relations function provide us with good practice, should Paroc Group have the opportunity to become publicly listed one day,” he suggests.

Sizzling hot market situation

“For the past six months, the demand for Finnish high-yield bonds has been rocketing. Big international investors are back in Europe, looking for higher returns. They will devour any IPOs and corporate bonds that are being offered, and big American investment funds are especially interested in industrial, retail and online trade sector offerings,” says Koponen, partner and head of the capital markets group at Borenius.

Since Finnish IPOs have been rare recently, international investors have turned their gaze on bond offerings.

“Previously, institutional investors were not allowed to invest in other than investment grade bonds, but thinking around this has changed a lot. Today when interest rates are low, high-yield bonds are acceptable and even desirable investment targets and reputable high-yield issuers are very much in fashion,” Koponen says.

He urges Finnish companies and investors to grab the chance and enter the exceptionally dynamic and thriving bond market or get listed. “Don’t wait too long, though. Preparations take six months, so now is the time to act.”

With interest rates falling, he also says companies should consider a refinancing arrangement.

Contact the Capital Markets team at Borenius (Finland)

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