February 9, 2017 / 3:44 PM / 6 months ago

LPC-European lenders eye €12bn of buyout financings

LONDON, Feb 9 (Reuters) - A potential €12bn of leveraged buyout loans could hit Europe’s loan market in the coming months as the pipeline of buyout deals starts to build, presenting a welcome break from a flood of refinancings and repricings that have dominated the market so far this year.

Sale processes have kicked off for a number of companies including Swiss chemicals company Archroma; jewellery retailer Thom Europe; French spreads business St Hubert; cleaning and collection company Safetykleen Europe; Swedish air treatment group Munters; Italian facilities management business Manutencoop; UK breakfast cereals producer Weetabix and Solvay’s polyamides unit.

“The European market absolutely needs the new deal flow because there is too much money blowing a hole in the pockets of institutional investors,” a syndicate head said.

Although 2017 got off to a busy start, refinancing and repricing deals have driven issuance, supported by a ‘bond to loan’ trend, junior loan takeouts and an increase in add-ons, as private equity firms take advantage of the deep liquidity in the leveraged loan market to attain favourable senior loan pricing on covenant-lite loans, with no prepayment penalties.

Bankers are spending a lot of time working on debt financings for potential sales in the pipeline, attracted to committing large underwritten, event driven financings as an alternative to the flood of lower paid and less lucrative regurgitation of existing deals.

Investors and banks are counting on buyout firms to be successful, in order to avoid another disappointing year.

“Banks are trying to put money to work at sensible yields, which are getting crushed across the board from repricings and refinancings. A healthy amount of new deal will help to alleviate this,” the syndicate head said.

A majority of banks are clamouring to get a spot on the increasingly aggressive staple financings being offered on potential buyouts, in the hope they will be mandated by the successful buyer.

Staple financings have historically been there to beat, but have now become so competitive that some buyers are using them.

Four out of the five staple financing banks were mandated to underwrite around €1.1bn of debt financing to back Partners Group and PSP Investments’ buyout of European medical laboratory services operator Cerba.

HSBC has offered a staple financing on the potential sale of Archroma, equating to around 5.75 times Archroma’s approximate €180m Ebitda. Many bankers are working hard to win a lead role on the sale, willing to offer highly attractive docs and reduced flex.

LINING UP

Other potential deals in the pipeline include a sale of German metering group Techem and its peer Ista; PlusServer, the managed hosting business that is due to be spun out of Host Europe following its acquisition by US-based website domain name provider GoDaddy and German industrial weighing specialist Schenck Process.

Both Ista and Techem boast Ebitda’s in excess of €300m and any financings would come close to €2bn.

“Ista and Techem are on everyone’s radars. They are huge and it is likely they will want to avoid coming to the market at the same time. The sellers are going to have to decide whether they want to come first to the market first or last,” a senior leveraged finance banker said.

Both Ista and Techem are known to leveraged investors already and there is capacity to finance both in the European loan market. The fear is that they will sell to corporate or infrastructure buyers, triggering devastating repayments.

Despite private equity firms benefitting from an abundance of cheap financing and even offers of attractive equity bridges from a growing number of providers such as Goldman Sachs, KKR and Macquarie, the big question is whether they will be able to compete with trade buyers as quantitative easing continues to favour European companies with access to cheap, unsecured funding.

Fitch Ratings expects lending to new European buyouts in 2017 to be in line with €50bn in 2016, despite a possible rush for deals before the European Central Bank implements new leveraged lending guidelines.

Editing by Christopher Mangham

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