RLPC-Banks huddle together on buyout loans

LONDON Tue Jan 24, 2012 4:54am EST

LONDON Jan 23 (Reuters) - Banks underwriting new European leveraged buyouts are seeking safety in numbers to share risk and reduce the possibility of being stuck with deals that they struggle to sell in volatile markets.

Recent private equity deals, including the buyouts of Swiss telecom operator Orange Switzerland and legal services firm CPA Global have seen larger bank underwriting groups. This allows banks to underwrite smaller amounts and leaves less to syndicate to reduce their exposure.

Cinven has hired six banks to underwrite a 435 million pounds-equivalent leveraged loan backing its buyout of CPA Global, a deal that previously would have been arranged by three to four banks.

HSBC and JP Morgan are global coordinators on CPA Global's loan and have been joined by Bank of Ireland, Credit Agricole, Mizuho and Lloyds as sub-underwriters, banking sources said on Monday.

These banks have agreed to hold around half their commitments and sell 235 million pounds debt to investors in a primary syndication process.

"Half of the (CPA) deal is done. It's a new dynamic to get more banks in at the top," a banker on the transaction said.

Although this is less profitable as banks have to share fees, it protects private equity firms and banks from being unable to sell the loans in volatile markets, bankers said.

Banks were left with up to 10 billion euros of unsold leveraged loans in September 2011, according to Thomson Reuters LPC data, after the eurozone crisis closed the high-yield bond market.

APAX LEADS THE PACK

Apax Partners mandated at least seven banks to lead the financing of its buyout of Orange Switzerland in mid-January which is expected to include a high-yield bond element.

"In the old days, that would have been three to four banks, or even two," a banker said.

A thin pipeline of new buyouts is causing banks to consider underwriting deals, such as CPA, that would previously have been syndicated on a club basis to bring in income and keep teams ticking over in a fallow period.

"We are all hyenas right now. It's the winter season and we're looking for the only sick caribou left on the tundra," a leveraged banker said.

Leveraged loan bankers are also working on debt financings supporting the sale of frozen food chain Iceland Foods and German bandage maker BSN Medical, both of which are likely to feature large arranging groups if sold to private equity buyers.

Montagu Private Equity's sale of BSN Medical is already attracting interest from banks eager to underwrite the debt. The private equity firm has hired Goldman Sachs and HSBC to run the sale process. (Reporting by Isabell Witt; Editing by Helen Massy-Beresford)

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