LONDON Feb 24 As veterinary pharmaceuticals firm Ceva Sante Animale prepares to launch an 850 million euro ($1.17 billion) covenant-lite financing, investors are demanding that pricing reflects both the aggressive nature of the structure and the growing unease regarding French credits.
Credit Agricole, Goldman Sachs, Natixis and Nomura agreed to underwrite the covenant-lite loan, which will be mainly denominated in euros and will include a dollar carve-out. The European market has previously shunned loans that do not have traditional maintenance covenants that protect investors.
"If Ceva's syndication is going to struggle, it will be on the grounds of its geographical location and its structure, because people have seen how structural issues make a massive difference in France. The deal is very punchy and it feels like the wrong jurisdiction to do covenant-lite. Theoretically there should be a pricing premium for it," a leveraged finance banker said.
Investors have been increasingly wary of investing in France recently; the market is suffering as a result of wider macroeconomic conditions and is also a difficult region if companies default on their debt and enter restructuring, as the process has been seen as lengthy and more borrower-friendly.
The Ceva loan has aggressive total leverage levels of 7.0 times EBITDA. Senior leverage is expected to be 5.25-5.5 times.
In addition, the loan will not have a 'double luxco' structure, which allows senior lenders to enforce security without going through French courts to avoid a potentially lengthy restructuring if the company defaults. The exclusion of double luxco on Ceva led some banks to walk away from the deal. With a pricing premium, institutional investors are more likely to invest in Ceva, which is a strong credit and a well-known borrower in Europe's leveraged loan market.
It could also benefit from being one of a very few buyout financings in the European market. In a technical market, in which demand far outweighs supply, cash-rich investors are desperate to put cash to work, even if the terms are more aggressive than they would want.
"It is not great and the structure is not what we want to see, particularly when there has been such underperformance on portfolio deals in France. Now would be the time to reinforce your protection, but there are no deals out there, so it plays into the borrowers' hands," a loan investor said.
Ceva is the ninth-largest animal health group globally and a sale of a minority stake in the company has attracted interest from several private equity firms, which are expected to submit bids in late February that could value the total company at 1.5 billion euros. Management will have a majority stake in the company and is taking a very active role in the sale and financing process.
The financing includes a 700 million euro term loan B; a 50 million euro revolver; and a 100 million euro capital expenditure facility. A Payment In Kind (PIK) loan of around 200 million euro is also included, which has been preplaced with a mezzanine fund of Ardian (formerly Axa Private Equity).
The deal is due to launch for syndication at the end of March with bank meetings taking place in London and New York, when pricing will emerge.
With operations in the US, the inclusion of a dollar tranche is unsurprising and opportunistic. A banker said there is always the threat that the dollar component of the deal could be increased if European investors push too far for a hefty pricing premium and effectively price the deal out of the market. ($1 = 0.7275 euros) (Editing by Christopher Mangham)