(Adds detail on leverage and regulation)
By Claire Ruckin
LONDON, Nov 27 (LPC) - Banks are lining up to provide around £1.4bn of debt to back the acquisition of UK forensic sciences group LGC by a private equity consortium led by European firms Cinven and Astorg, but high leverage on the loan is preventing some banks from getting involved, banking sources said.
A number of banks are expected to be appointed this week including HSBC, KKR Capital Markets, Morgan Stanley, Nomura and BNP Paribas, banking sources said.
The financing is expected to total around 8.0 times LGC’s approximate £165m-£170m Ebitda and will consist of first-lien loans and subordinated debt either in the form of second-lien loans or mezzanine-like cash-pay and PIK.
While the financing is highly leveraged, the company is a well-known, well-liked credit in Europe’s leveraged loan market and is expected to be well received.
“LGC is awesome. Every bank will want a piece of it,” a syndicate head said when the company was up for sale.
The financing will be not too dissimilar to a staple financing offered by JP Morgan, HSBC and KKR Capital Markets during a competitive auction process, when the KKR looked to sell the company to an array of bidders.
While JP Morgan was on the staple, the bank is not expected to underwrite the buyout financing.
A number of bankers site leverage will approach levels closer to 8.5-9.0 times.
While it is acknowledged that the company can justifiably take such high leverage, given it is highly cash generative, delevers quickly, is backed with a large equity cheque and is in a strong sector, some banks have been prevented from doing it from a regulatory standpoint.
In the US, regulators introduced lending guidelines in 2013 to curb loans leveraged above six times debt to Ebitda.
“It is dissapointing as it is a great deal but at those levels it just cant get the nod internally,” a senior banker said.
A second senior banker added: “US banks regulated by the Fed could find it tricky to do LGC given the leverage levels. However, there is a load of equity behind it, it is a very strong cash generating business that delevers well and is arguably in the best sector. Every comp in the sector is well supported.”
The financing will launch for syndication in January, providing some relief to investors and bankers fearful that the pipeline for 2020 is rather sparse.
“This will be a good one to kick off the year,” a senior banker said.
Cinven and Astorg were not immediately available to comment.
New York-based private equity firm KKR bought LGC from Bridgepoint in 2015 for about £650m and helped the company grow through a string of acquisitions.
While Cinven has a focus on the pharmaceuticals and life sciences industry, Astorg has interests across software, healthcare, business-to-business, and technology-based industrial companies.
LGC last tapped the loan market in July 2019 when it raised an incremental €210m-equivalent leveraged loan to fund upcoming acquisitions. KKR was sole arranger of the loans, with Wilmington Trust acting as agent.
After that, LGC’s complete capital structure comprised a US$420m TLB paying 350bp over Libor; a €490m TLB paying 325bp over Euribor; a €115m TLB paying 400bp over Euribor; a €145m second-lien paying 650bp over Euribor; and a US$105m second-lien paying 675bp over Libor. There was also a £50m revolving credit facility, according to LPC data.
LGC previously had sterling loans but they were removed from the capital structure when LGC sold a business in the UK that generated most of its sterling cash flow. (Editing by Christopher Mangham)