Greif Luxembourg successfully places EUR 200 mn of 10Y HY bonds
“Hold” the GEF 7.375% 07/21 at 100 or a Z-spread of 420 bps
US-based industrial packaging manufacturer Greif successfully issued EUR 200 mn of 10Y bonds at 100 with a coupon of 7.375%. Considering the weak markets on Friday, pricing was in line with our expectations. We view Greif as “Medium Risk” on the LARA scale. We like the company’s dominant market position in the rigid industrial packaging & services segment, solid cash flow generation and in our view decent leverage. However, the company is exposed to cyclical swings. This is somewhat mitigated by the fact that a cyclical downturn usually leads to a release of working capital. Furthermore, Greif follows an aggressive expansion strategy and remunerates shareholders generously. We are also cautious of the on-going high restructuring charges, which in our view are inherent in the industry. We believe that documentation does not provide good protection for bondholders, particularly as major HY covenants - including the restricted payment test and the limitation on additional indebtedness - are not included, and as the notes are guaranteed by only Greif Inc. with no other security granted. In our view bonds offer fair value at the moment. For more details please refer to our “New Issue Assessment” from Friday.
