May 1, 2019 / 2:44 PM / 3 months ago

Berry's RPC jumbo debt deal to favour dollars

LONDON, May 1 (LPC) - Banks have adjusted a US$6.5bn debt financing backing US-based plastics maker Berry Global Group’s acquisition of British packaging company RPC Group to reduce a euro portion and scrap the sterling component altogether in favour of cheaper dollars, banking sources said.

The financing is set to launch for syndication to loan investors next week and will comprise US$3.5bn-equivalent of loans and US$3bn of bonds, the sources said.

Goldman Sachs and Wells Fargo Bank are leading the financing and have been joined by Bank of America Merrill Lynch, Barclays, BMO, Deutsche Bank, JP Morgan, Morgan Stanley, RBC and UBS.

The loans comprise a US$2bn tranche and a US$1.5bn-equivalent euro-denominated tranche, while the bonds comprise US$2bn of senior secured notes and US$1bn of second-lien senior secured notes, the sources said.

A portion of the dollar term loans and bonds will be swapped into euros and sterling, the sources said.

“It is cheaper to raise dollars and swap to euros and sterling,” a senior banker said.

A second senior banker added: “A euro or sterling tranche can disappear on a big cross border deal led out of the US as there is always flexibility to move things about. The origination teams in the US want more of the syndication.”

The dollars are expected to pay around 250bp, while the euros will pay around 300bp.

RPC and Berry were not immediately available to comment.

It is a strong, well rated company that is expected to be welcomed by both US and European investors.

The reduction in euros and sterling, however, will be a disappointment to European investors, awash with cash and short of deal flow so far this year.

The acquisition financing originally comprised a €2.5bn term loan and a £400m term loan paying margins of 325bp over Euribor and 425bp over Libor, respectively.

It also included a one-year €1.5bn and £300m first lien bridge loan paying initial margins of 325bp over Euribor and 400bp over Libor, and a one-year US$1.275bn second lien bridge loan paying an initial margin of 375bp over Libor. Pricing on the bridge loans included a 50bp increase every three months after closing.

In addition, US$3.552bn of loans to backstop existing term loans has been removed as there is an existing first lien term loan amendment so debt at Berry does not need to be refinanced.

A combined Berry and RPC financing will have around US$9bn in senior debt and some US$12bn of debt in total.

Berry Global is rated BB+ by S&P and Ba3 by Moody’s.

Berry announced its acquisition of RPC in March, for a total purchase price of US$6.5bn, comprising US$4.4bn for the cash offer, US$0.3bn of transaction expenses and US$1.8bn of assumed average net debt.

The jumbo deal will give a boost to Europe’s leveraged loan market, which recorded a decade low in volume during the first quarter according to LPC data, amid concerns over the US-China trade war and Brexit.

It will also be a test for investors’ international appetite as the UK is RPC’s largest single market.

RPC, which makes Heinz tomato ketchup bottles and packaging for Nivea sun cream, operates in 33 countries, with the UK accounting for about 24% of revenue. (Editing by Christopher Mangham)

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