RLPC-Grifols' refinancing loan removes euro pricing premium

LONDON, March 4 Tue Mar 4, 2014 10:43am EST

LONDON, March 4 (Reuters) - Spanish blood products group Grifols' debt refinancing package includes a $3.8 billion Term Loan B that has the same pricing structure on both the euro-denominated and the dollar-denominated tranches, eliminating the pricing premium on euro facilities that have been a feature of all recent cross-border leveraged loans for European borrowers.

A $3.25 billion tranche and a $550 million-equivalent tranche denominated in euros are both guided to pay 300 bps-325 bps over LIBOR/EURIBOR. They are both offered with 101 soft-call for 12 months and a 99.5 OID.

The deal is covenant loose as there is one net leveraged covenant of 5 times.

European investors committing euros to cross-border deals have traditionally been offered a premium of between 25 bps-50 bps over the pricing on the dollar tranche. French smartcard maker Oberthur Technologies is in the market with a refinancing and has outlined pricing guidance of 375 bps on its 260 million euro ($358.11 million) loan compared to 350 bps on the $280 million facility.

The erosion of a pricing premium on euro portions of cross-border deals has been anticipated by Europe's leveraged loan market amid deeply technical conditions as borrowers become increasingly aggressive on structuring deals.

"Presumably Grifols' view is that if euro investors don't like it, they will just do more dollars instead. There are so few deals in the market, borrowers have got more aggressive and are taking an indifferent approach to euros and dollars. They are happy to take euros but are not going to pay up for it. It is surprising if more borrowers don't do the same," a loan investor said.

European borrowers traditionally pay higher pricing for euros on leveraged loans compared to their US peers because risk in Europe is more difficult to price as there is less transparency than the US. There are also jurisdictional issues in Europe and it is less liquid compared to the far larger US market, which makes it harder to sell in Europe's secondary loan market.

"Europe's loan market is more risky than the US loan market which is why there has been a pricing premium for euro tranches on cross-border deals. A pure euro deal will pay a far more than a pure US deal," a second investor said.

MORE TO COME?

It is expected that Grifols' loan will be the first of many deals to do away with a pricing premium and investors are anticipating that French veterinary pharmaceuticals firm Ceva Sante Animale's cross-border buyout loan could be next. Pricing on that financing is expected to come at around 325 bps-350 bps over Libor with a 1 percent floor, banking sources said.

Loan investors are disappointed at the thought of losing the pricing premium on euro facilities and say that the move is solely down to the lack of supply in the leveraged loan market.

"No differential between pricing on the dollar and euro tranches is something we don't like and we don't want to see it coming through on other deals. Market technicals are pushing structures and pricing as much a possible. It is frustrating," the second investor said.

Grifols' new refinancing also includes a $300 million revolver and a $700 million Term Loan A, as well as $1 billion of eight- year, non-call 3 senior notes. Together, the loans and bonds will be used to replace a $1.5 billion bridge loan from January that was used to back Grifols' acquisition of the blood diagnosis business unit of Novartis, as well as Grifols' existing debt of around 2.4 billion euros.

Morgan Stanley, Nomura, BBVA, Deutsche Bank and HSBC are joint lead arrangers and bookrunners on Grifols' refinancing and commitments are due by March 6. ($1 = 0.7260 euros) (Editing by Christopher Mangham)