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LONDON, May 15 (Reuters) - French glass bottle maker Verallia is launching a third repricing of its €1.375bn debt to take advantage of strong liquidity and favourable conditions in Europe’s leveraged loan market, banking sources said.
The company is releasing first quarter numbers on Tuesday and a call was taking place at 2pm to go through them. At the end of that call, lenders were expected to be notified of a repricing, the sources said.
Verallia reduced the margin on its €1.375bn loan to 375bp over Euribor with a 0% floor in December, having reduced it previously in June 2016 to 350bp with a 1% floor.
The borrower's term loan originally priced in July 2015 at 400bp with a 1% floor.
Soft call protection from the December repricing runs out in June, when it is expected that the new interest margin, agreed as part of this latest repricing, will commence, the sources said.
Six-month soft call protects investors against borrowers altering the terms of their loans within that period, but once that time is up, there is nothing to prevent a borrower from coming back and attempting to reduce pricing again.
“It is open season once six months has expired. Borrowers will keep doing it as long as the market will accept it,” a banker said.
Credit Suisse, Deutsche Bank and Nomura are running Verallia’s latest repricing.
It is the second loan to return for a third repricing, with Swedish home alarms company Verisure also looking to reduce interest margins again, having conducted repricings in June and December.
Europe’s leveraged loan market has seen a flood of repricings since September 2016. Most of the credits in the market have repriced once, if not twice but this is the first time credits have come back for a third time, amid a lot of liquidity and very little supply that is enabling strong borrowers to continue improving the terms of their debt.
Bankers have been working on repricings on a best-efforts basis rather than an underwrite, meaning there is no financial loss if the aggressive asks are not met by investors.
“If a deal is performing well, trading above par and has a headline margin higher than the market, then investors should expect a deal to be repriced. These are best-efforts deals and until these deals stop getting done, sponsors and bankers will keep pushing their luck. They are aggressive but because the market is not pushing back, there is no reason why they wouldn’t be,” a capital markets head said.
Other deals touted to come back for a third repricing include German perfume and cosmetics retailer Douglas, which removed a 1% floor in January having reduced the margin on its €1.37bn term loan B to 375bp in July, from 500bp.
Investors may think twice about repricings with a slug of event-driven financings on the horizon including 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.
“Borrowers have to be careful as people think a good pipeline is coming up. Previously if a deal tried to reprice investors would agree as they didn’t want their money back, but in the future they might be quite pleased to have some money back,” the capital markets head said.
However, if the new money deals price in line with the repricings, they be no more attractive than the existing deals.
“New deals will balance the market a bit but if something is trading above par and is a core holding of people then are they really going to give it back? Only if a massive supply of new deals come at a much higher price and people aren’t expecting that,” the banker said. (Editing by Chris Mangham)