RLPC-Big European leveraged buyouts back on the agenda

LONDON Mon Feb 24, 2014 9:34am EST

LONDON Feb 24 (Reuters) - European leveraged debt financiers are lining up jumbo financing packages, including a 5 billion pound ($8.34 billion) loan and bond deal backing the potential sale of UK chain Wm Morrison Supermarkets and another for the purchase of Britain's largest mobile operator EE , to take advantage of liquid and confident markets.

Morrisons' founding family, which owns a 9.5 percent stake, contacted buyout firms to gauge their interest in a buyout after disappointing Christmas sales. A deal size of up to 10 billion pounds could mean that private equity firms have to team up to write a large equity cheque if the deal goes ahead.

Bankers were working on debt packages backing EE of about 6 billion pounds last February, when owners France Telecom and Deutsche Telekom considered a sale or IPO. These could easily be dusted off.

In January, FT and DT said that they would maintain the current structure of their joint venture and put the IPO plan on hold. Some bankers now say that a sale is back on their radar.

At the same time, lenders say they are working on two further financing packages of $5 billion and $9 billion to back leveraged acquisitions by private equity firms and corporates, which they declined to name but said could come to the market this year and would act as another major boost to the market.

"2014 will present a massive opportunity for leveraged corporate M&A financings. Sponsors are also desperate to do deals. Leverage levels are crazy. It will be a very busy year," a leveraged banker said.

DEARTH OF M&A

The renewed impetus around big deals, which have not been seen in number since the peak of the market in 2007, comes after limited M&A activity in 2013 left high liquidity levels in Europe from new CLOs and credit funds.

Cash-rich private equity firms and companies are eager to provide new buyouts to satisfy institutional investors calling for paper. The leveraged loan and high-yield bond markets have shrugged off early volatility from the emerging markets wobble, and bankers say that 2014 could be the year for big deals.

In addition to the jumbo buyouts in the works, Europe's leveraged loan market is seeking more 1 billion euro-plus ($1.37 billion) financings. The sale of Europe's second-largest card payment services company Nets Holding will require about 1.2 billion euros of debt and the sale of German packaging group Mauser will need around 1 billion euros.

The lack of event-driven financing and new primary deal flow in Europe in 2013 has led to aggressive terms on deals, including higher leverage levels, tighter pricing and looser covenants, as banks compete for scarce mandates.

French veterinary pharmaceutical firm Ceva Sante is looking to raise more than 1 billion euros of covenant-lite loans to back a sale of a minority stake in the company. The financing has total leverage of about seven times and will not have a "double luxco" structure in an aggressive move that reduces senior lenders' ability to enforce security if the company defaults on its debt.

Several jumbo buyout loans in the market at once could create a less aggressive environment by soaking up liquidity and offering lenders the ability to pick and choose between deals.

"The market really needs one or two big deals to soak up some of the demand and cool the market," a second leveraged banker said.

Jumbo deals will initially be sold in Europe, but have the option of tapping the US for additional liquidity if necessary. Bankers working on the potential 5 billion pound debt financing for Morrisons are considering a mix of loans and high-yield bonds in sterling, US dollars and euros. ($1 = 0.5993 British pounds) ($1 = 0.7275 euros) (Editing by Christopher Mangham)