April 11, 2018 / 8:20 AM / in 6 months

Flora Food's €3.3bn loans trade lower in secondary market

LONDON, April 11 (LPC) - Some €3.3bn equivalent of leveraged loans backing KKR’s buyout of Unilever’s spreads business Flora Food Group have traded down in Europe’s secondary loan market, leaving sellers nursing losses on the jumbo loan, bankers said.

Flora’s €2bn term loan B was quoted at 98.8 on April 9 and a £700m term loan B was quoted at 98.9, lower than the final Original Issue Discount (OID) price of 99.5 when the deal closed on March 7, according to Thomson Reuters LPC data.

The deal’s trading levels are lower than Europe’s top 40 leveraged loan composite, which had an average bid of 99.42 on April 9, the data shows.

The €2bn euro loan, which is the largest single-tranche euro-denominated term loan B since the financial crisis, tested investors’ limits, sources said.

The financing also included a US$875m dollar loan, which was quoted at 100.6 on April 9, and a €700m revolving credit facility as well as €1bn of senior unsecured high-yield bonds which are expected to launch shortly.

Investors were allocated nearly all of their commitments on the euro loans, which is rare in a market where demand from the booming institutional buyside typically exceeds supply.

One investor said that they put in an order of €60m on the deal, expecting to receive an allocation of around €40m, but received €57m instead.

“Everyone is full to the brim on this deal,” a senior investor said.

Some investors tried to sell excess exposure but struggled to find willing buyers which lead to softer loan bids, but some investors have opted to sell at a loss.

“Technically its outside primary fees that were offered to the general market, so any investors selling would make a loss,” a loan trader said.

The euro and sterling term loans were quoted lower than the OID at 99.19 and 99.25 respectively when the loan broke for trading on March 7, before trading lower to current levels.

The euro loan hit a low of 98.68 on March 27, the data shows.

“The worry on those larger deals is you need to tap so much liquidity so can’t really afford to get it wrong at all,” a leveraged banker in London said.

Flora’s €475m-equivalent Polish zloty tranche has also fallen in the secondary market and was quoted at 97.33 on April 9. It allocated at 99.5 on March 7 and was quoted at 99 on the break, TRLPC data shows.

“There were losses on the zloty - it hurts,” the trader said.

KKR was not immediately available to comment.

HITTING RESISTANCE

Flora’s performance follows the downward trajectory of the broader secondary leveraged loan market which has been dragged lower by wider market volatility.

Average bids on Europe’s top 40 leveraged loans fell to 99.42 on April 9 from 99.85 on March 7.

Some investors also rejected Flora’s loan due to aggressive features within the documentation, several sources said.

Investors are becoming less willing to accept weaker terms after aggressive documentation on recent loans such as petrol forecourt operator EG Group and French telecom network service provider Circet Groupe.

“Documentation is near a tipping point,” a syndicate head in London said.

Secondary bids could soften further due to the sheer volume of deals that are expected to be launched in the second quarter in Europe.

Deals in the pipeline include Carlyle’s €10.1bn carve-out of Akzo Nobel’s specialty chemicals business and Blackstone’s US$20bn carve-out of Thomson Reuters Financial & Risk division.

Blackstone is buying a 55% stake in Thomson Reuters’ Financial and Risk unit, which includes LPC.

Flora Food Group raised €4.7bn-equivalent of leveraged loans backing its buyout by KKR, after attracting around 80 major investors into the jumbo cross-border deal.

Editing by Claire Ruckin and Tessa Walsh

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