Swiss packaging firm SIG Combibloc leveraged its improved credit rating to enable €1.55bn refinancing.

Samuel Sigrist

SIG Combibloc is no stranger to reinvention. Founded as a railway carriage manufacturer nearly 170 years ago, the Swiss company is now one of the world’s leading suppliers of food and drink packaging. From its unlikely headquarters in the small town of Neuhausen, SIG’s emerging markets strategy has seen it expand into more than 60 countries stretching from Chile to South Korea.

Its most recent transformation involves its capital structure. Following its takeover by Onex in 2015, SIG was saddled with a debt stack typical of any private equity buyout, leaving the company levered 5.9 times its debt-to-earnings before interest, taxes, depreciation, and amortisation (Ebitda). Three years later, SIG listed on the Swiss stock exchange, replaced its funding, and set its sights on an investment-grade rating and a leverage ratio of two times Ebitda.

Chasing an upgrade

SIG has seen success in both regards. Its leverage ratio now sits at 2.9 and S&P has moved the company into investment-grade territory, while Moody’s places it two notches below. Over summer it took another important step, refinancing its entire outstanding debt via a €1.55bn multi-pronged deal that saw it return to the bond markets after a five-year hiatus.

“Our financing structure has evolved alongside our path towards investment grade,” says Samuel Sigrist, SIG’s chief financial officer. “With this most recent transaction, we moved into an unsecured structure which we believe reflects the crossover status we now have with these two rating agencies.”

The full package

Wanting to take advantage of its public company status and new investment-grade rating, SIG began 2020 debating how to replace its two secured-term loans, one of which was with institutional investors. “We had high-yield notes in place during the Onex ownership, but with the reduction in leverage we wanted to use the opportunity to re-establish a presence in the bond market,” explains Mr Sigrist. “We debated which other tools we could use, but from the beginning the clear view was that the euro bond market was the right option.”

At the same time, SIG wanted to link the funding to its ambitious sustainability agenda, which has earned it low-risk ratings from Sustainalytics and EcoVadis. “We debated a green bond, but, as we didn’t need to raise money for a specific project, it wasn’t the right approach,” says Mr Sigrist. “That said, everything we do basically qualifies as ‘green’ so a sustainability-linked loan was the better tool for us.”

In early March SIG started discussing its options with Credit Suisse, Goldman Sachs, UBS and UniCredit. It opted for €450m in three-year bonds, €550m in five-year bonds, a €550m term loan and a €300m revolving credit facility (RCF). The loan and RCF are tied to SIG’s ongoing reduction of its carbon footprint and the entire package is unsecured which, Mr Sigrist says, underlines the company’s aspiration to become full investment-grade over time.

A juggling act

As a single refinancing package, SIG could not launch any tranche until it was certain the others would follow suit. The solution was to preplace the loan and RCF – which it did in March at Euribor plus 100 basis points – on the condition it would start the agreement and issue the bonds by July. This flexibility proved invaluable, as shortly thereafter Covid-19 took its toll on European debt markets.

“That gave us time to weather the storm. Once markets had stabilised to levels we deemed attractive enough, we could complete the refinancing,” says Mr Sigrist. “The good thing was that we were ready, and that gave us the agility to move when we saw the window of opportunity.”

That window arrived a few months later, with investor meetings kicking off on Monday, June 8. “Markets became a little more difficult towards the second half of the week,” Mr Sigrist recalls. “But on Thursday morning after a number of go/no-go calls we came out in the 2% area for the three-years and 2.25% area for the five-years.” The price tightened throughout the day before closing at 1.875% for the three-year notes and 2.125% for the five-year notes.

Resilient in times of crisis

The order book was many times oversubscribed, which Mr Sigrist attributes to two factors: “Investors really understood our razor-blade business model, which delivers recurring cashflows; and the fact that we cater to end markets in food and drink makes us resilient even at times of crisis.”

This ‘razor-blade’ system, which takes its name from the shaving industry, refers to the exclusive relationship between SIG’s two products; the cartons it manufactures and the machines it leases to clients to fill the cartons. It is a business model that has fostered long-term partnerships with some of the biggest names in consumer products, which was another selling point for investors.

For SIG, its refinancing positions the company for further success. “We have moved into an unsecured financing structure which reflects our rating. We have a mix of complementary financing instruments and a maturity profile that is very helpful in the current environment. And going forward we can leverage our new presence in the bond market,” says Mr Sigrist. “Given the market circumstances, we can’t not be happy with that.”

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