May 5, 2017 / 11:16 AM / 4 months ago

LPC-Buyouts fuel Europe's leveraged loan pipeline

LONDON, May 5 (Reuters) - Over €20bn of leveraged loans from 25 deals could hit Europe’s leveraged loan market in the coming months as the pipeline of buyouts gathers pace, offering bankers the lucrative underwriting they’ve been waiting for and investors the chance to put new money to work.

Europe’s leveraged loan market has had some new issuance of late, including deals for UK software companies Misys and Micro Focus, but this has done little to satisfy the appetites of bankers and investors who have been desperate for event-driven financings after a splurge of repricings and refinancings since September 2016.

With so much liquidity and demand for new paper, bankers are feeling fairly confident on imminent syndications. These include a €1.95bn term loan B backing the buyout of German drugmaker Stada; €393m equivalent of term loans backing UK-based Element Materials Technology’s acquisition of British laboratory-based testing firm Exova Group, which forms part of a wider US$1.5bn financing; and a euro portion of a €2.5bn-equivalent leveraged loan financing for Hong Kong-based international schools operator Nord Anglia Education.

And more buyout loans are on the horizon as bankers prepare staple financings for a number of auction processes, promising more lending activity if private equity firms win out.

“It is a bit nerve-racking but it is also exciting. The pipeline is pretty full with lots of deals that could happen and the market is ready for them,” a senior banker said.

Some of the larger deals could include around €3bn for German metering group Ista; over €4bn for Anglo-Dutch consumer group Unilever’s margarine and spreads business; €1.2bn for French drug maker Sanofi’s generic drugs business; €1bn for French nursing home company DomusVi; US$1bn for Swiss-based smart meter group Landis+Gyr; and US$1.5bn for US herbal supplement maker Nature’s Bounty.

PLENTY TO GO AROUND A number of the financings could start to hit the market in June and despite the large sums of cash needed to back the buyouts, there is a consensus among lenders that the leveraged loan market has the capacity.

While the large number of deals is unlikely to reverse the technical dynamic of supply/demand imbalance, it is possible they will slow down the non-event-driven transactions as sponsors turn their attentions away from improving the debt of portfolio companies and investors focus their energy on the new paper in the market.

“The market is pretty constructive: if all the buyouts come to fruition, a steady flow of deals will attract more funds to the market and they will get sold,” a second senior banker said.

A third banker added: “Investors will have more confidence to push back on refinancings and repricings if new deals continue to come to the market. If they get yanked from existing deals, they will just have more money to invest in new paper.”

Bankers are also working on financings under €1bn for the potential sales of cleaning services company Safetykleen Europe; Sanofi’s European contract manufacturer business Cepia; Danish packaging group Faerch Plast; IT and outsourcing firm Civica; UK human resources software company NGA Human Resources; Deutsche Post’s British outsourcing subsidiary Williams Lea; and British retailer The Body Shop, among a number of others. (Editing by Christopher Mangham)

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