RLPC-European leveraged loans bring in more aggressive terms

LONDON Tue Feb 11, 2014 12:55pm EST

LONDON Feb 11 (Reuters) - European leveraged loan bankers are putting together debt packages with more aggressive terms to back a number of potential sales as they compete to underwrite new buyout loans.

Leverage multiples for the potential sales of French natural ingredients producer Diana Ingredients and French veterinary health company Ceva Santé Animale could fetch as high as 7 times while some bankers are proposing around 6.5-7.0 times on Europe's second-largest card payment services company Nets Holdings and 6.0-6.5 times for Spanish food group Deoleo.

"The companies coming to market are very good which is why you can put high leverage on them. Historically it has been better to overleverage good companies versus underleveraging poor companies. This is leverage finance, not slightly leveraged finance," a syndicate head said.

The companies are expected to attract a lot of attention from private equity and trade buyers, eager to do deals following a dearth of acquisitions business in 2013.

Ardian, formerly Axa Private Equity, bought Diana in 2007 backed with 517.9 million euros ($708.31 million) of leveraged loans. Last year JP Morgan and Lazard were hired to manage a sale of the company for about 1.2 billion euros. First round bids in an auction process are expected to be submitted at the end of February.

Bankers were given information at the end of January to enable them to put together packages to pitch for the business and debt is likely to total about 700 million euros in senior leveraged loans and subordinated debt, denominated in euros and dollars.

FOOD FIGHT

JP Morgan is also running a sale process for Deoleo, a food group which includes a number of olive oil brands including Bertolli and Carbonell. It is quoted on the Spanish stock market and shareholders include Spanish banks.

First round bids are likely to be submitted in the coming weeks and bankers are considering debt packages of around 560 million euros denominated in euros and dollars.

A sale of a minority stake in Ceva Sante is set to attract bids from several buyout groups and BC Partners, Charterhouse, Cinven, CVC, Hellman & Friedman and KKR have shown interest and may submit offers by a late February deadline.

Ceva, the ninth-largest animal health group globally with sales of more than 600 million euros, may be valued in total at about 1.4-1.5 billion euros or 12-13 times its Ebitda of 116 million euros.

Bankers are preparing debt financing of around 7.0 times and the deal is expected to be the first pure European covenant-lite loan.

But despite the aggressive terms being placed on deals, bankers and investors are certain it is not a return to 2006-07.

"The leverage multiples are high and terms are getting aggressive but the EV of the businesses is also at the high end so you can get the leverage up. This is not 2007, it is much more of a case of strong cash flow businesses supporting high levels of leverage with big equity cheques behind them," a leveraged finance banker said.

Investors have been sounded out on a number of the deals and a pre-syndication process is not uncommon at the moment in Europe's highly technical leveraged finance market.

"We are being sounded out on the deals before a buyer has even emerged or placed a bid, but we want to do deals, so if the company is good, we are likely to accept aggressive terms be it leverage, pricing or covenants," one investor said.

A 3.735 billion euro-equivalent dual currency loan backing Liberty Global's acquisition of Dutch cable company Ziggo was oversubscribed, despite some investors finding pricing too aggressive and a ticking fee insufficient.

REVERSE FLEXED

Terms are also getting aggressive on deals currently being syndicated in Europe's leveraged loan market. Dutch information provider Bureau Van Dijk Electronic Publishing reverse flexed pricing on its dividend recapitalisation.

It's new 525 million euro TLD priced at 425bp on the dollar and euro tranches and 450bp on the sterling portion, 50bp lower than BvD was paying on the existing tranches.

The new deal increased BvD's total leverage to around 6.7 times from 4.7 times.

BvD's new 145 million euro second-lien facility, which pays 700 bps, is set to pave the way for more second liens in Europe as investors search for yield.

"We want to see more second liens in Europe as they are the only way to get yield when pricing is tightening to unattractive levels on senior debt," the investor said. ($1 = 0.7312 euros) (Editing by Christopher Mangham)

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