LONDON, Feb 7 (Reuters) - Israeli furniture maker Keter Group has increased the size of an add-on loan to 320m, having navigated one of the more tricky syndication processes in Europe’s leveraged loan market to close oversubscribed, banking sources said on Tuesday.
Keter set out to raise a 300m incremental term loan to finance its acquisition of Italian peer ABM Italia. The extra 20m raised will now be used for a number of other potential add-on acquisitions, the sources said.
The incremental term loan is due to allocate on Europe’s secondary loan market with a 97 OID on Tuesday afternoon. It pays 425bp over Euribor, with a 1% floor.
The lower OID reflects the secondary trading level of the company’s existing debt. Its 690m term loan, raised as part of a wider 790m financing in October 2016 to back its buyout by private equity firm BC Partners and pension fund manager PSP Investments, was bid at 97.3 percent of face value on Tuesday morning, according to Thomson Reuters LPC data.
It is one of the more generous paying leveraged loans in Europe, attracting investors desperate for yield in a very technical market where most deals allocate at par, as demand far outweighs supply.
“Keter is seen as one of the trickier loans as it has a few short term issues and you have to buy into its longer term story. If you can do that, it is a great deal to invest in, in this market,” a loan investor said.
UBS and BNP Paribas are physical bookrunners, along with RBC and JP Morgan as bookrunners.
Its secondary trading level compressed following issues during the 2016 syndication process.
Many investors inflated their orders for the loan, which priced tighter due to an oversubscribed book. Despite scalebacks during the allocation process, investors were still awarded more paper than they bargained for and were unable to sell out of the tightly priced deal on secondary. The loss of liquidity in the loan pushed the price down.
Lenders to European leveraged loans have seen their allocations scaled back to such an extent that they have been forced to inflate orders in a bid to attempt to secure decent ticket sizes. The process is risky though.
“People oversize orders to try and manage allocations and every now and then they will get it wrong. On Keter they got it wrong big time and ended up with higher participation than they wanted. If you oversize your commitment you are taking a risk and the cost of that is in the secondary price,” a leveraged loan banker said.
Keter produces a wide range of consumer goods including indoor and outdoor furniture, home accessories and hardware products. (Editing by Christopher Mangham)