Two high yield bond deals marketed in Europe during the last week of June included unorthodox and aggressive redemption provisions that deviated from the call protections traditionally seen in the European high yield market.

The Nouryon Deviation 

In the case of Nouryon, the Netherlands-based manufacturer marketed its €450 million 6.125% Senior Secured Notes due 2031 through its Dutch and U.S. entities with a 5NC1 structure (five-year tenor noncallable for one year).

Not only was the one-year non-call period (NCP) in this cross-border financing off-market by European high yield standards – where fixed rate bonds with a tenor of 5 years typically include 2-year non-call protection – but the bonds also featured a perverse call schedule set at 102% from the start of year two, stepping down to 101% from the start of year three and then to par.

Typically, the call schedule premium in fixed rate bonds (once the NCP expires) steps down from 50% to 25% of the coupon before the notes become callable at par. This unusual 102%/101%/par call schedule framework stood out as a market outlier, crystallising into a concrete market practice snub once the notes finally priced at 6.125%. Had the notes followed the standard 50%/25%/par construct, they would have required a minimum call price of 103.062% (50% coupon) during the first year after the NCP, then 101.531% (25% coupon) during the second year of the call schedule, and par only in the last year of the tenor.

This issuance also featured an abnormal formulation of the standard equity claw provision, which typically permits the redemption of up to 40% of the notes with proceeds of qualifying equity offerings (here also expressly contemplating a potential SPAC IPO) at par plus the coupon during the NCP, provided that a specified percentage of the notes (typically 60% or 50%) remains outstanding after such redemption. In this case, however, the requirement was that the outstanding amount be the lesser of 50% and a fixed euro amount (which remains uncertain, as it was blank in the red OM and was not indicated in the pricing supplement). This variation could potentially facilitate the use of the equity claw alongside the ‘10% @ 103% call’ – which allows the issuer to call up to 10% of the original principal amount of the notes at 103% in each calendar year during the NCP – to redeem a majority of the notes at a price considerably lower than the make whole, thereby eroding the protection purported to be afforded to investors during the NCP.

The TeamSystem Irregularity

On the other hand, TeamSystem’s €750m 6.5% Senior Secured Notes due 2032 bonds were priced with a 6NC2 structure – which we consider to be in line with the market for bonds of this tenor – but additionally incorporated other characteristics that departed from standard practice. The first anomaly was, again in this case, an aberrant call schedule, which dropped to par plus 50% of the coupon call premium on year three (i.e. as expected, after the 2 year NCP) but then fell directly to par from the following year, skipping the established par + 25% coupon step of the European standard call structure (which would have yielded 101.625% in the fourth year of these 6.5% bonds). Although this construct is certainly not unprecedented (it was already present in the issuer’s existing €500m 5% Senior Secured Notes due 2031 issued in June 2025), this pricing framework remains notably market divergent.

In addition to the off-piste call schedule, the TeamSystem 2032s also included other issuer-friendly call concessions such as the 10% @ 103%, and the so-called ‘102% IPO claw’ or IPO Redemption.

While the incidence of the former call technology has grown steadily in secured fixed rate notes, particularly in the European HYB market, it nevertheless remains an undesirable value suppressant during the NCP from the bond investor’s perspective, in that it enables the issuer to take out 10% of the notes during each 12 month period (or, more aggressively, calendar year) elapsing during the NCP at 103%, rather than the higher make-whole amount¹.

As to the ‘102% IPO claw’, a relative newcomer to the European HYB stage over the last couple of years, the issuer may, in the event of an IPO, also call the bonds in whole or in part at 102% with the IPO proceeds (in these bonds, at any time during the notes’ tenor). This new call phenomenon, which could theoretically be exploited in addition to exercising the traditional equity claw during the NCP, remains fairly rare to date, having been observed in roughly 10% of the European bonds reviewed by Xtract in 2025 (the year we first spotted the trend; all of which were sponsor deals), and in roughly 10% of the European HY reviewed by us during the first half of 2026².

Market Reactions 

Although these yield-hostile call anomalies appearing in Nouryon and TeamSystem appear to have cleared the market with no resistance, this was not the case back in April for the US-headquartered manufacturer of pharmaceutical capsules Capsugel³.

Capsugel marketed its €750 5.75% Senior Secured Notes due 2033, with an unusual 7NC2 structure (a seven-year bond with a 2-year non-call period), followed by the standard 50%/25%/par call schedule for the years following the NCP. Typically, 7-year notes include a three-year non-call period, granting one additional year of call protection for bondholders for the longer tenor.

As flagged in our report on the preliminary offering memorandum for the bonds⁴, the whole covenant package in this sponsor deal was extremely aggressive, with numerous off-market features. Refreshingly, according to our sister product, Debtwire, alongside a number of other changes in the documentation, the call protection was ostensibly improved for investors during marketing, as the proposed economic structure was changed before pricing to the more standard 7NC3. However, based on pricing information available from Debtwire, the call schedule was also modified to the more aggressive and unusual 50%/par scale later seen in TeamSystem, which would, in the case of Capsugel, allow redemption at par during the last three years of the notes’ tenor⁵.

The Capsugel bonds also contained some other notably audacious variations on the other call provisions they contemplated: the ‘10% @ 103% call’ allowed the 10% yearly redemption quota to be carried forward if unused in a single year (unprecedented, to our knowledge), and the threshold of the standard trigger allowing the issuer to “drag-along” any minority holdouts in any tender or exchange offer, was set at 75%, rather than the standard 90%. Neither of these nuances appear to have been challenged.

Conclusion 

While the examples described above illustrate – perhaps ad hoc or opportunistic – undermining of call protection safeguards relative to previously well-established European high yield market standards, the reaction of the market has not been consistent and seems to have depended largely on demand and appetite for the relevant credit prospect.

Investors should be mindful that, although the immediate economic impact of seemingly isolated changes to standard redemption (and other) terms may appear fairly anodyne, the cumulative effect of increasingly issuerfriendly concessions could extend beyond an initial offering or two to gradually sabotage traditional investor protections.

Take, for example, the case of floating rate notes (FRNs). Typically, European FRNs followed the following schedule: non-call/make-whole for the first year; then callable in the second year at 101%, and finally callable at par from the third year onwards. However, due to incremental erosion over several years, the inception of which we noted in our special report of 2019⁶, FRNs have been increasingly subject to a limited call protection: a make-whole/non-call period of one year, after which issuers are afforded the option to redeem such notes at 100%. This seems to have now become the prevailing offering, as highlighted by our observations during 2025 and through the first half of 2026, when 70% and 88%, respectively of the FRNs we reviewed, contemplated this compressed call structure.

The exclusive focus on the short-term economics of the deal at hand, rather than on the longer-term implications for covenant quality and investor protections, can be treacherous. Whether the individual instances of weakened protections described in this Special Report represent a bellwether for a more widespread attack on call protection provisions that could challenge longstanding high-yield bond market norms, or merely chance attempts by issuers to preserve refinancing and restructuring flexibility in a market characterised by elevated interest rates and market volatility, remains unclear.

In any event, we believe it’s important for investors to continue to demonstrate the value they place on call protection through consistent resistance to initiatives that undermine their contractual safeguards. Market vigilance should be maintained to avoid inadvertently validating the demise of their expected returns through passive resignation.

We will continue to assist investors in monitoring the documentary guardrails and staying the course.

1 62% of the European fixed rate notes we reviewed in 2026 included this feature. 

2 For more insight into and analysis of the ‘102% IPO Claw phenomenon, see our Special Report: “Upfield’s New ‘Anytime’ 102% IPO Claw – A Bridge Too Far?” (19 June 2024) 

3 Based on information from Debtwire, as we have not reviewed the pricing supplement or final OM for TeamSystem or Capsugel. Capsugel switches unorthodox 7NC2 fixed note structure to 7NC3 during roadshow | ION Analytics | Debtwire. 

4 See Xtract’s covenant report on Capsugel.

 5 Capsugel sets final terms on EUR 830m TLB and EUR 750m SSN, books close at 4:30pm UKT today for TLB | ION Analytics | Debtwire.

6 See Xtract’s Special Report European FRNs: Call Protection Erosion – 2019 Update (31 October 2019).