1. CAPITAL MARKETS AND FUNDING
30 The Treasurer April 2014 www.treasurers.org/thetreasurer
In February, Innovia Group
issued its inaugural €342m
high-yield bond repayable
in 2020. As group FD, this was
the first time I had been through
such a process and I share my
experiences with you here.
The group is private equity-
owned and is comprised of two
businesses. Its films division
is a leading manufacturer of
speciality films such as those
used in food packaging. Its
security division produces
polymer substrates under
the Guardian®
brand, which
are used in the printing of
banknotes. In March, it secured
a contract with the Bank of
England to supply the substrate
for the forthcoming £5 and £10
notes. The business operates
globally, is headquartered in
Cumbria, and has treasury
skills in its small finance team
(although no dedicated
group treasury function).
On 10 February 2014, after
earlier preparatory work
including briefing rating
agencies, we launched the
bond issue. The bonds priced at
Euribor +500bp on 13 February
and the bonds (more properly
referred to as senior secured
floating rate notes, listed on the
Luxembourg Stock Exchange)
closed on 21 February.
Contractual
arrangements
The key contractual item was
the 73-page ‘description of
notes’ section of the offering
memorandum, which, in our
case, ran to over 350 pages.
This sets out the rights of
the note holders and the
restrictions that the group has
to operate within while the
notes remain outstanding.
The concepts around the
restrictions were different from
those I had experienced before.
Previously, I have dealt with
facilities that contain ongoing
financial covenants.
Our bond contains an
alternative set of restrictions
that aim to safeguard the
in the description of notes.
We reviewed a summary
of the common limitations
(approximately 30) and
what had been achieved in
recent issues. This helped us
to negotiate an appropriate
package with our lead
bookrunner in advance
of the launch.
Documentation and
due diligence
The offering memorandum
was subject to a thorough
verification exercise to ensure
all descriptions and statements
about the business could
be validated. As we had
completed a major corporate
transaction during the previous
calendar year, we had to
include pro forma information
to assist in the marketing of the
bond to give potential investors
a better indication as to what
the group might look like
going forwards. In addition, we
needed to include unaudited
management accounts through
THERE IS PLENTY TO THINK ABOUT
WHEN YOU ISSUE A HIGH-YIELD BOND
FOR THE FIRST TIME. DAVID TILSTON
EXPLAINS THE PROCESS
creditworthiness of the group
and the security available to
note holders as is normal with
this type of financing. It permits
certain transactions (such as
dividend payments and raising
additional debt), as long as
identified financial ratios are
met. Such ratios are only tested
on an ‘incurrence’ basis, not
on a regular basis, and may
not be tested at all if any of
the specified transactions are
not contemplated during the
life of the bond. Overall, the
financing package is relatively
flexible compared with bank
loan facilities.
The format of these
restrictions has developed
from practice in the US
markets. They provide carve-
outs (‘baskets’) so as not to
impede normal operational
requirements. In some cases,
the value of the basket can
increase over time, depending
on the group’s performance.
The various limitations tend
to follow a regular format
MAKING
A DEBUT

2. www.treasurers.org/thetreasurer April 2014 The Treasurer 31
fully signed off and all numbers
‘circled’ (ie confirmed by the
auditors) prior to printing.
These would be provided to
potential investors during the
roadshow. We had a further
‘bring down’ due diligence call
where the management team
confirmed to the lawyers that
there had been no material
changes to the group’s trading
conditions or outlook that
needed to be reflected in the
offering memorandum.
The audio of our first investor
presentation was recorded
so that it was available on a
secure website – along with
the presentation material –
for potential investors who we
had not seen. As the roadshow
progressed, the investors tended
to go straight into question and
answer sessions dealing with
their specific queries.
Evolution of demand
While we were on the
roadshow, the lead bookrunner
ran an intensive communication
campaign with potential
investors, dealing with their
queries and determining
appetite. The management
team received progress
updates at the end of every
day. Our confidence in the
strength of demand for
the issue increased as the
roadshow progressed, although
early on it was difficult to judge
how successful we would be.
In parallel, the lead
bookrunner was discussing
potential pricing on a bilateral
basis with potential investors
during the Wednesday
(referred to as ‘price
whispers’). It then issued a
‘price talk’ announcement
(a firm indication of pricing)
over Bloomberg on Thursday
morning. As we received
offers resulting in a four-times
oversubscription, a second
‘price talk’ announcement was
issued later in the morning at a
slightly lower rate. Allocations
were then agreed and
commitments locked in during
Thursday afternoon. Formal
completion occurred the
following week (after yet more
to October 2013, since there
was a requirement to include
accounts that were produced
to a date within 135 days of
the issue. The figures for the
past three years of statutory
accounts were included in the
financial pages at the end of
the offering memorandum and
our auditors needed to provide
comfort on certain aspects of
the financial information that
we provided, which added to
the workload.
Roadshow
The roadshow commenced with
a confidential sounding out
of a small number of market
participants. This proved to be
helpful, as many of the tougher
questions we subsequently
faced were flagged at this initial
stage. By the weekend, we
had confidence that we should
expect a reasonable investor
appetite for our bonds.
In addition, we held due
diligence calls with our auditors
and our lawyers to confirm that
the financial content of the
‘red herring’, the draft offering
memorandum minus final
commercial terms, had been
‘bring down’ calls and update
of the ‘red herring’ with final
agreed terms).
Workload
The workload involved in
launching such a bond is both
immense and intense. We
were highly dependent upon
a very small number of people
in our finance team, who at
times almost totally focused on
preparatory work for this issue.
A shareholder representative
who had significant refinancing
experience supported us and
was important to the success
of the issue.
There were many parties
involved. These included our
own lawyers; lawyers acting for
the lead bookrunner and co-
bookrunners; overseas counsel
involved in specific legal and
security issues; the security
trustee; our auditors; the sales
team promoting the bond; and
other representatives from
within the lead bookrunner;
co-bookrunners themselves.
The continuous requests for
information, decisions and
conference calls meant that
we were constantly juggling
priorities. Within the company,
only myself and the CEO had
a reasonably full overview of
the process.
Conclusion
There are plenty of points to
consider when issuing a high-
yield bond for the first time, so
I would recommend seeking
the advice of other treasurers.
You can also read my tips in the
box above.
LESSONS LEARNED
Ensure you appoint advisers
with proven experience in the
high-yield bond market.
Prepare early, add spare
temporary resource where
possible and do not
underestimate the workload.
Focus on the likely
restrictions in the description
of notes and how these
work versus your
business requirements.
Engage early with auditors
to understand their likely
work programme.
Identify who internally
can assist in a thorough
verification exercise on the
offering memorandum.
Be ready to move rapidly
if market conditions permit.
David Tilston
MCT is group FD
of Innovia Group
TIMETABLE
Wednesday 5 February
Sounding-out process
commences
Friday 7 February
Due diligence call with lawyers
and auditors
Sunday 9 February ‘Bring down’ call with lawyers
Monday 10 February
Confirmation of decision
to launch
Announcement of launch
Confirmation of credit ratings
Presentation to sales team
Monday 10 to Wednesday
12 February
Investor presentations in
London, Paris and Frankfurt