Leveraged Loans

IHO launches €500M sustainability-linked PIK-toggle note

By Thomas Beeton
March 23, 2023

IHO Verwaltungs has launched a €500 million, five-year (non-call two-year) sustainability-linked PIK-toggle note which will partially refinance its existing €800 million secured PIK-toggle notes maturing in 2025.

Deutsche Bank (B&D), BNP Paribas, BofA Securities and Citi are joint bookrunners on the offering, and will hold an investor call at 2 p.m. GMT today, with a roadshow set to run through tomorrow.

IHO is rated BB/Ba2/BB- and is a holding company run by the Schaeffler family, which holds 100% of the voting rights in Schaeffler and significant stakes in Continental and Vitesco Technologies.

The holding company placed its €800 million of 2025 secured PIK-toggle notes in May 2019 at par with a coupon of 3.625% cash and 4.375% PIK. The deal came alongside a €500 million offering of 3.875%/4.625% notes due 2027 with the same structure.

Proceeds from the new deal—which matures in 2028—will partially refinance the 2025 PIKs, which IHO said it expects to redeem at par on May 13. The new notes will feature an unchanged covenant structure and will similarly pay a 75 bps coupon uplift in the case of non-cash interest.

In addition to the 2025 and 2027 PIK-toggle notes, IHO debt included an €800 million RCF due December 2024, €750 million of 3.75% secured PIK-toggle notes due 2026, and dollar PIK bonds maturing in 2026, 2027 and 2029, following a record PIK-toggle trade in 2016.

The bonds will also feature an ESG component based on Schaeffler’s sustainability report published in 2022. Specifically, Schaeffler will reduce its Scope 1 and 2 greenhouse gas emissions by 75% by 2025 versus a 2019 baseline, with a coupon step-up of 25 bps per year set to apply from 2026 if the target is not met.

Deutsche Bank is ESG coordinator on the bond offering, and banks are guiding investors to expect issue ratings in line with existing IHO ratings at BB/Ba2/BB-.

Schaeffler is a global supplier to the automotive and industrial sectors and is rated BB+/Ba1/BB+ on stable, positive and stable outlooks respectively. The company earlier this month reported 2022 results which showed revenue and EBIT of €15.8 billion and €1.04 billion, respectively—up 9.4% and 6.6% compared to 2021.

The company has a debt curve stretching to 2028 and a €800 million issue of 1.875% unsecured notes due March 2024, and told investors this month they will look at the market “opportunistically” with respect to refinancing the bonds. Schaeffler last year signed a loan financing split between a €2 billion revolver and €500 million term loan to support the acquisition of Ewellix Group, which it said was based on the fact that bond financing was not attractive at the time.

Featured image by Adi Syukur / Shutterstock

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