RLPC-Springer Science buyout loan revised to attract investors-sources

LONDON, July 24 Wed Jul 24, 2013 11:01am EDT

LONDON, July 24 (Reuters) - Banks arranging a 1.97 billion euro ($2.60 billion) buyout financing for German academic publisher Springer Science+ Business Media have had to offer a range of concessions to investors to sell the deal after a weak response, banking sources said on Wednesday.

Private equity firm BC Partners agreed to buy Springer in June for 3.3 billion euros. The deal is the biggest Western European buyout loan since the 9 billion pounds ($13.83 billion) financing backing the buyout of Alliance Boots by KKR in 2008.

The terms of Springer's loan looked aggressive after a market correction in June when the U.S. Federal Reserve announced plans to scale back its equity-friendly stimulus programme.

The banks underwriting Springer's financing - Credit Suisse, Goldman Sachs, JP Morgan, Barclays, Nomura and UBS - had to offer the paper at a 350 basis points discount at 96.5 percent of face value, along with other incentives.

The enhancements will use up most of the banks' fees, which will reduce profitability on the deal. Investors said that the banks could be breaking even or possibly making a loss, depending on flex provisions.

"That discount is on the cusp, my guess is they're either making nothing on it or making a loss, it depends on the flex language," a senior leveraged loan investor said.

The underwriting banks declined to comment. BC Partners was not immediately available to comment.

Flex provisions are included in the terms of buyout financings to allow banks to make changes to the terms to make them more attractive to investors, if deals prove difficult to sell.

Springer's deal, which had leverage of seven times earnings, was also one of the first European loans to be sold on a 'covenant-lite' basis, which offers no protection for lenders via financial tests.

Investors are concerned that publishing companies could be disintermediated by free access and online publishing systems, as yellow pages publishing businesses have been.

US investors were also put off after losing money on textbook publisher Cengage, which filed for bankruptcy on July 2, as it is in the same industry and risk profile as Springer, several investors said.

Cengage was bought in 2007 in a $7.75 billion deal that was one of Apax Partners' and OMERS Private Equity's biggest investments at the time.

"If you've written off money in Cengage, as a lender are you going to come back one or two months later and take the same bet?" a senior investor said.

ENHANCEMENTS

Other enhancements to Springer's loan include 101 soft-call protection for one year, which guarantees a payout of 1 percent over par to investors for one year if the company opts to prepay its loans within that time frame.

Lenders may also be offered 'Most Favoured Nation' status, which guarantees a minimum secondary price for the loan, to protect against the lead banks discounting the paper further once it frees to trade.

The market correction is less severe than 2011, when more than 10 billion euros of unsold loans had to be heavily discounted to sell, bringing heavy losses to arranging banks, investors said.

Investors are seeing Springer's issues as largely credit specific and said the deal was unlikely to affect many other European deals being sold in the US.

"This paper will still find a home, it's not like 2007 and 2008 when there was no bid," a loan syndicate head said.

($1 = 0.7565 euros) ($1 = 0.6508 British pounds) (Additional reporting by Natalie Wright in New York; Editing by Christopher Mangham)

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