June 27, 2017 / 11:42 AM / 2 months ago

LPC-Lenders set to lose out on €3.175bn Stada debt after failed bid

LONDON, June 27 (Reuters) - Europe’s leveraged loan and high-yield bond markets are set to lose out on a €3.175bn jumbo buyout financing for Stada after Bain and Cinven’s takeover of the German drugmaker fell apart, robbing banks of a hefty underwriting fee and depriving investors of much needed new paper.

A €5.3bn takeover bid by private equity groups Bain and Cinven did not win enough shareholder support after just 65.52% of Stada's equity capital signed up for the deal, falling short of the 67.5% acceptance threshold.

The financing backing the buyout from Barclays, Citigroup, Commerzbank, Jefferies, JP Morgan, Nomura, Societe Generale and UBS had been conditional on the deal going ahead.

Banks are estimated to lose out on around €60m of fees altogether -- around €7.5m each -- based on a 2% underwriting fee.

It is the latest blow for lenders, which this year have been working for small fees on a relentless round of repricings and refinancings.

“It was a significant fee event that is no longer happening so it will impact the underwriting banks,” a leveraged finance head said. LARGEST FINANCING Investors will also be disappointed as it was set to be the largest leveraged financing so far this year, offering a chance to put a hefty amount of new money to work to soak up excess liquidity and reverse the supply/demand imbalance that has plagued the market.

“Stada was the escape valve, a significant transaction to allow a large deployment of capital to take some of the pressure off. Although there is some supply coming to the market, there is nowhere near enough to satisfy demand so it will embolden underwriters and arrangers and worry investors who are already feeling they have too few places to put cash," the leveraged finance head said.

The underwritten financing included a €1.95bn seven-year senior secure term loan B; €485m of seven-year senior secured fixed rate bonds; €340m of eight-year senior unsecured fixed rate notes; and a €400m seven-year revolving credit facility.

The prospect of such a large financing had caused loan investors to push back on some of the more aggressive deals in syndication to get better terms.

The more liquid names in Europe’s secondary loan market had also begun to soften in the last couple of weeks for the first time since March, according to Thomson Reuters LPC data, as investors sold out to make room for the new supply.

Now the withdrawal of Stada from the market is expected to see investors return to accepting increasingly aggressive terms and tight pricing.

“Although we began to see some pushback, the concern has to be that investors will now sacrifice credit discipline for the expediency of putting cash to work. Stada’s loss will inflate the bubble again,” the leveraged finance head said.

A second leveraged finance head said: “Pricing will continue to be compressed. Without Stada, we can expect to see most deals go successfully. It’s back to being a borrowers' market.”

Bain and Cinven are in talks over a potential new Stada offer and are speaking with investors -- mainly with hedge funds -- about the terms.

The expectation is that Bain and Cinven will look to revive the financing they had in place, if the new offer goes ahead, gifting a second chance to the underwriting banks and investors. (Editing by Christopher Mangham)

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