June 3, 2020 / 10:49 AM / a month ago

REFILE-UPDATE 1-Banks take hit to derisk on Boels' €1.6bn acquisition loan

(Fixes typo in headline)

By Claire Ruckin

LONDON, June 2 (LPC) - The five banks that underwrote a €1.61bn acquisition loan for Dutch equipment rental firm Boels are set to lose money as they seek to sell it cheap and reduce risk, banking sources said.

Credit Suisse, ING, ABN Amro, Rabobank and BNP Paribas are leading the underwritten financing, which was initially launched for syndication as a €1.61bn term loan B in February but was postponed in March due to the outbreak of the Covid-19 pandemic.

The TLB relaunched on May 29 at a reduced size of €985.5m, after €625m was converted into a term loan A, which will be held by the arranging banks.

“Was a TLA planned when the process was first run? No. Is it held as a compromise? Yes, thus is life. The structure allows the banks to clear some of the position,” a senior banker said.

TLAs amortise down over time and are held by banks, while TLBs are typically sold to institutional investors.


The price of the TLB also widened in a bid to attract investors, which is set to eat through the banks’ flex protection and fees, resulting in a loss.

“Pricing had to fall to where the market would buy the deal, but that is not within the banks’ flex,” the senior banker said.

Before Covid-19, banks could typically receive flex protection of around 125bp-150bp, to be split between margin and OID.

Boels’ €985.5m TLB is guided to pay 400bp over Euribor, at 92-93 OID, far wider than the 300bp-325bp over Euribor, at 99.5 OID initially guided in February. A 0% floor remains the same.

The TLA, which amortises at 5% per annum, is guided at 375bp over Euribor, with a 0% floor.

The relaunched deal now also includes a maintenance leverage covenant and 101 soft-call for 12 months.

“This pricing eats into the fees but it gets it off the books. The market is in control at this stage,” a syndicate head said.


While pricing is significantly higher, it enables the banks to sell down a portion of the loan rather than hold it on the balance sheet and risk the uncertainty of a second wave of Covid-19.

“The banks are through their fees and will be making a loss but they are selling it because no one knows what will happen, so they are cutting their bait,” the syndicate head said.

Europe’s leveraged loan market opened for business on May 20 when JP Morgan and Nomura identified a window of relative stability to launch a €775m buyout loan for French mortgage broker Financiere CEP, making the first steps since March to reopen for acquisition-related deals.

That encouraged a number of other deals to launch. CEP was viewed as a natural candidate to reopen the market as a B2-rated borrower, already well-known in the leveraged loan market and in a sector not strongly affected by Covid-19.

However, lenders have some reservations about Boels.

“Boels is large equipment rental and feels like the type of business that wont do very well,” the syndicate head said.

That has prompted the lead banks to unload as much of the financing as possible.

“Three weeks ago selling anything in Europe’s leveraged loan market was unimaginable. Do people get out now and take a hit or hold it even though there could be a second wave? This is pure risk management,” a second syndicate head said. At BB-, Boels has a strong rating, which will help during the sell down process as it should attract the CLO bid. CLOs are eager for stronger rated borrowers after a number of downgrades left vehicles inundated with B3 and Triple C rated deals.

“If CLOs can come to terms with the credit then Boels is not a bad CLO name, as it has a good rating. Perhaps it was sized for the CLO bid,” a leveraged finance head said.

It is on negative outlook which means it could get downgraded to B+, but that is still a good rating compared to a lot of deals in the market, which are B-.

“Boels has a strong rating, low leverage, it is covenanted and has remarkably strong current trading,” a second leveraged finance head said.


The majority of bankers in Europe’s leveraged loan market are willing the few deals in the market that have launched so far to go well, in the hope it will pave the way for more business.

“We all have a vested interest in these deals going well as we need a functioning market. No one wants deals to suffer or banks to lose money,” the first leveraged finance head said.

Proceeds from Boels’ financing will back the firm’s €614m acquisition of Finland’s Cramo, as well as refinance all of Boels’ and Cramo’s existing debt and pay transaction costs.

Lenders have been asked to commit to the financing by June 8, following a lender meeting on Tuesday.

S&P ratings are BB-/RR3 with a negative outlook. Moody’s and Fitch ratings were previously withdrawn at B1/BB- with a negative outlook, and will be reissued. (Editing by Christopher Mangham)

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