* Dividend deal relaunched after October failure
* Structural tweaks made to appease investors
* Brazilian exposure flagged as a concern
(Adds comment in graf 10 on upsizing the deal)
By Robert Smith
LONDON, Feb 8 (IFR) - Apollo Global Management has
resurrected its attempt to raise a payment-in-kind bond at
Verallia, making a series of concessions to win over investors
that snubbed the deal last time around.
On Wednesday Verallia revived the abortive trade, targeting
a smaller €350m five-year non-call two PIK toggle deal and
halving the proposed dividend to €280m. US private equity giant
Apollo owns 90% of Verallia and BPI France holds the remaining
Pricing is slated for later this week, after investor
meetings on Wednesday and Thursday, and two investors told IFR
they expected the deal to price with an eight-handle yield via
joint global coordinators - Credit Suisse, Barclays and Goldman
In October, the French glass bottle maker's shareholders
tried to strip €490m out of the business through a dividend,
funded with a €500m five-year non-call one PIK toggle at a
deeply subordinated holdco.
Credit Suisse was the sole global coordinator on that deal.
High-yield bond investors balked at the size of the proposed
shareholder distribution, however, particularly as it followed
hot on the heels of a previous €230m debt-funded dividend. The
two payments combined would have outstripped the €578m of equity
Apollo and BPI France contributed to Verallia in its 2015 LBO.
These concerns were compounded by jitters around Verallia's
ability to service the PIK's coupons in cash, resulting in one
of the most high-profile failed deals in the European high-yield
market last year.
While Verallia never set formal price talk on its October
deal, sources told IFR at the time that whispers also began at
eight-handle yields, before drifting as wide as high-9% as the
trade fell apart.
"Maybe I'm being cynical, but I could see them trying to get
it back up to the original €500m if everyone piles in," said one
A source close to the deal said that it could be upsized
ahead of pricing "based on investor demand", but that no further
shareholder distribution was expected "for a long period of
time" and that a dividend blocker meant the notes "cannot be
upsized after closing".
Several investors said that the relaunched deal had been
widely expected, noting that while Verallia's existing bonds
tanked on the first deal's announcement, prices were little
changed on Wednesday.
"It's not a surprise given how strong the market is; the
bankers have been trying to revive it all year," the first
"They've been looking for the reverse order pretty much as
soon as it failed. And they said at the time they weren't that
far off doing a deal that looked like this."
The source close to the deal said banks had received "large
numbers of reverse enquiries" on a revived PIK deal.
IFR reported in October that banks running the deal sounded
out investors on potential "structural tweaks", before throwing
in the towel completely.
To assuage investor concerns around debt-service capacity,
Verallia has earmarked €60m of the new deal's proceeds to fund
an interest reserve account, which it estimates will result in
around €113m available for debt service.
On the initial deal there was no such account and just €35m
estimated available for debt service, which would have only
covered one semi-annual coupon payment on the PIK note.
BRAZILIAN VENTURE RISK
A second investor noted that a default at Verallia's
Brazilian joint-venture last month could drain some of its
available cash, however.
Verallia's subsidiary SG Vidros has a 27% stake in IVN,
which failed to repay loans to banks on January 31. SG Vidros
has guaranteed €44m of IVN's loans and has made €16m of
shareholder loans to the Brazilian company.
"The shareholder loan would be a write-off of equity, but
the €44m could be a cash outflow," the investor said.
"If the PIK comes in the mid-to-high eights I might play it
though. I do think you're covered on the equity - they're
talking 4.8x leverage and this is a business that should trade
at no less than 6x even in a bad market."
The source close to the deal said investors had raised "no
specific concerns" around the Brazilian JV risk.
The PIK's expected credit rating is CCC+ from S&P.
(Reporting by Robert Smith, editing by Alex Chambers)