Liquidity boost puts big loans back on European agenda

LONDON Fri Jan 17, 2014 1:01pm EST

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LONDON (Reuters) - The abundance of liquidity in the European leveraged loan market has restored its capacity to finance bigger deals, prompting sponsors to consider pure European financings to back potential M&A deals, including French broadcasting masts operator TDF's domestic business.

Liquidity has been boosted by a lack of M&A last year, a number of repayments and the emergence of new CLOs and credit funds.

Private equity firm Dering Capital is in advanced talks to buy TDF as the last remaining bidder in the sale process and is approaching a number of banks to see what financing can be put in place to back an acquisition.

The sale would require over 2 billion euros ($2.71 billion) of debt and Dering is seeking to fund the potential buyout with debt denominated solely in euros, structured as all-senior leveraged loans or senior and subordinated debt.

The loan could be a similar size to last year's 2.3 billion euro financing backing CVC's acquisition of a majority stake in German energy metering firm Ista, which was the largest pure European buyout loan since 2007, according to Thomson Reuters LPC data.

"A lot of money has been raised in new CLOs, managed accounts that have come to Europe and international funds that have European baskets, which means that although it isn't pure European money, it is denominated in euros. There is an awful lot of liquidity to do pure European leveraged financings and people wouldn't blink at raising 3 billion euros of loans for one deal," a syndicate head said.

Bankers are also preparing leveraged loans of up to 700 million euros for the planned sale of a minority stake in veterinary pharmaceutical firm Ceva Sante Animale.

Ceva's management held presentations with a large number of banks last week to talk through potential debt packages. The company wants an all-euro covenant-lite financing consisting of senior loans and a preplaced subordinated loan.

With so much liquidity in the market, loan terms are getting more aggressive and it is only a matter of time before the first pure European covenant-lite loan launches.

Nevertheless, some banks remain cautious and will want to make sure they have a safety net and are likely to push for flex in documents to allow them to raise dollar financing if necessary.

"On a very large deal it is preferable to have flex language to go to the dollar market because it is deeper and more liquid. A lot of times, bankers will want that flexibility," the syndicate head said.

PRICING PRESSURE

An overwhelming amount of liquidity is also pushing pricing tighter in Europe. On Friday, pricing emerged on a loan financing backing Hellman & Friedman's acquisition of a 70 percent stake in Deutsche Telekom's classified advertising business Scout24.

A 645 million euro seven-year Term Loan B will pay 425bp-450bp and is offered with a 99.5 OID, while a 50 million euro six-year revolver will pay 425bp. The financing also comprises a 50 million euro eight-year second-lien tranche, which was preplaced with Macquarie.

"Scout 24 could even flex down to 400bp. At the moment, 400bp to 425bp is the market," an investor said.

That represents a fall of 25bp-50bp from a year ago, when the average Term Loan B margin was 450bp, Thomson Reuters LPC data shows.

($1 = 0.7376 euros)

(Editing by Christopher Mangham)

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