Verve places a subsequent bond issue of 65 MEUR

Verve announced yesterday that they have successfully placed a subsequent bond issue of 65 MEUR within the framework of the company’s existing senior secured floating rate 2026 bond. The subsequent bond was placed at a price of 102.5% of par resulting in a yield of 3 months EURIBOR plus 4.88% per annum. This marks a notable decline from the latest bond issue in 2023 with a yield of 3 months EURIBOR and 7.25%. Following the subsequent bond issue, the outstanding amount tied to the 2026 bond will be 240 MEUR.

Verve intends to use the proceeds from the subsequent bond issue to fully redeem the company’s outstanding 2020/2024 senior secured bond (approx. 34.5 MEUR) and for general corporate purposes. The redemption date will be July 29, 2024, and the record date will be July 22, 2024.

The net effect of these transactions is an increase of approx. 30 MEUR in interest-bearing debt and about the same in cash. With the net increase of yesterday’s bond issue, Verve’s interest-bearing debt would increase to 478.5 MEUR and their cash position to approx. 160 MEUR, prior to the acquisition of Jun Group. This gives the company a net debt position of 319 MEUR and a net to adj. EBITDA ratio of 3.2x, which is above the company’s new target range of 1.5-2.5x. However, following the acquisition of Jun Group, Verve’s pro forma leverage is anticipated to decline given the financing structure of the acquisition and the addition of Jun Group’s earnings. You can read more about the acquisition and its financial impact here.

Our assessment of the transaction is positive. By refinancing existing higher-yield debt with lower-yield bonds issued at a premium, Verve can reduce its annual interest payments, which is important as a significant portion of Verve’s generated cash flows is currently allocated to servicing interest payments. However, in the near term the interest expenses will increase slightly given additional debt, we estimate some 2-3 MEUR, which obviously is in the wrong direction. This increase is, however, limited by the placing of the bond at a premium, enabling amortization of the premium received, which effectively lowers the interest expenses. Nevertheless, in the bigger picture, the better terms on this subsequent bond issue indicate a reduction in financing costs that is yet to come once the outstanding bonds maturing in June 2026 and March 2027 are refinanced. The company expects at least 10 MEUR in annual interest cost savings from refinancing the debt at better terms, which we view as reasonable. The lower expected financial expenses from refinancing, in combination with the improved quality of earnings that the recent acquisition of Jun Group contributes, puts Verve in a better position to deleverage the balance sheet going forward. We will update our estimates at the latest at the end of August in conjunction with the release of the Q2’24 report.