By Robert Smith
LONDON, Sept 8 (IFR) - Ardagh pitched upcoming IPO plans to sell a deeply subordinated payment-in-kind note and saw strong demand despite its track record of abandoning listings.
The packaging company sold a Triple C rated US$1.715bn-equivalent seven-year PIK toggle bond on Wednesday, split into a euro tranche at a 6.625% yield and a dollar tranche at 7.125%.
Ardagh's chairman Paul Coulson told investors that the company will IPO its operating company in the first half of next year, but will only float around 5% - equating to just 250m-300m.
The listed entity would be one of the companies below the PIK issuer ARD Finance, most likely Ardagh Finance Holdings SA.
The PIK offering is Ardagh's first to have registration rights with the SEC, and is set to be filed later this year, which the company touted as further proof of its intention to also file IPO documents with the SEC.
But several fixed-income investors said they were not convinced a listing will actually come to fruition.
"They've been promising an IPO since I started in the high-yield market more or less," said one. "I've heard them say the same thing so many times before."
The company has history of stalled IPO plans, having burnt through 8.7m in "aborted IPO costs" in 2010, according to its accounts. Since then it has announced, and then delayed, a public equity market debut several times.
Last year, the company called off plans for an IPO of the business in favour of a planned New York listing of its metal can division Oressa. But this too was put on ice in November, with the company announcing that market conditions were not suitable.
Peter Schwab, a portfolio manager at Pax World, said the IPO delays had made it "a little frustrating as a company to follow".
"They have been talking about it for five years now and every time the market is difficult, then an acquisition comes along and they do it," he said.
Ardagh has grown its business through a string of debt-funded acquisitions, most recently raising US$4.5bn of bonds in April with US$2.85bn earmarked to fund its acquisition of a beverage can business disposed of during Ball and Rexam's merger.
THIS TIME IT'S DIFFERENT?
Another investor said he was happy to buy Ardagh's bonds given the company's strong performance and "stable defensive business", but was not "naive or complacent" on the long-awaited listing.
"A Q2 IPO would make sense as they want to consummate the beverage can acquisition and get some full-year numbers behind them, but who knows what equity market conditions will be like then," he said, adding that some were also disappointed at how small the planned IPO would be.
"This business is now generating 1.3bn Ebitda so even 300m will make quite a small impact from a deleveraging perspective."
He said that changes to the PIK notes' structure from Ardagh's previous deal indicated that the company may be more serious about listing, however, even though the deal will hand a 270m dividend to shareholders.
The company's last unsecured PIK raised in 2014 used the more aggressive pay-if-you-want structure, whereas the new senior secured deal uses a stricter pay-if-you-can toggle format. This means Ardagh has to pay the coupon with cash if its outstanding bonds at Ardagh Packaging Holdings Limited (APHL) have sufficient restricted payment capacity.
And Ardagh increased the deal's size by US$150m to pay down debt at APHL, which will improve its capacity to pay the PIK coupon in cash. In contrast, the size of the 2014 deal was increased purely to boost the dividend paid to owners.
"They seem serious about paying cash, as the longer a PIK accretes the more it dilutes shareholder value, because it'd just be rolling up and compounding," the investor said.
Other investors also said Ardagh is running out of acquisition targets, which have delayed IPOs in the past.
"It seems like the story is coming to its natural end," said Schwab. (Reporting by Robert Smith, additional reporting by Davide Scigliuzzo. Editing by Alex Chambers, Julian Baker)
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