| LONDON, July 8
LONDON, July 8 A recent influx of deals to
Europe's leveraged loan market amid volatile conditions is
causing nervousness among bankers over a repeat of the summer of
2011, when a number of lenders were left holding paper.
Bankers are having to revisit the pricing, currency and
loan/bond split on deals underwritten a few weeks ago, as market
conditions have altered. At the same time, deals also need to be
more competitive to attract investors' attention as several
financings hit the market in a pre-summer rush.
Banks will be eager to sell before August in case the market
shuts, as holding on to deals is expensive and banks are less
tolerable of it amid growing regulatory pressure.
They will be eager to avoid a situation like in 2011, when
banks were left holding LBO loans totalling around 2 billion
euros ($2.57 billion) for companies including German outdoor
brand Jack Wolfskin, telecommunications company Versatel and
French smartcard maker Oberthur.
"We could easily have a situation where there are too many
deals and market indigestion. There is a real chance that we get
to a situation similar to the summer of 2011, as deals are being
underwritten into a softening market," a leveraged loan banker
A second leveraged finance banker added: "Any underwritten
deal will need to be brought to market speedily. The expectation
is that there will be a deluge of transactions in the next four
weeks and some will get looked at while others will not. By
August, the market might shut and there is a risk that banks get
stuck on deals that are perceived as the 'ugly lady on the dance
Investors had been starved of product earlier in the year
and were eager to deploy liquidity but with some 20 deals in the
market and more to follow, investors are now more selective over
what to commit to and on which terms.
Investors have a choice of a number of leveraged buyout
financings, such as global manufacturer Gardner Denver; German
publisher Springer Science+Business Media; French calibration
services provider Trescal; packaging firm Chesapeake; and Dutch
water and coffee company Eden Springs.
There are also a number of refinancings, dividend
recapitalisations and add-on facilities being sought for
companies including United Biscuits; coffee and sandwich chain
Pret A Manger; French mechanical engineering group Spie; sports
marketing company Infront Sports; Nordic social and healthcare
outsource provider Attendo; Dutch retailer Action; French
telecoms group Completel; British Car Auctions; and Dutch
A number of other deals are set to launch to the market
before the summer, including the buyout loans for global IT
operations management software provider BMC Software; industrial
ceramics firm Ceramtec; and holiday resorts group Club Med.
"Investors will take their time to be picky over which deals
to invest in. It is clear investors have liquidity but how much
no-one knows as they aren't revealing it, so banks are getting
nervous as there are a lot of deals to sell," a third leveraged
finance banker said.
Banks will need to have sufficient flex language in
documentation to enable them to sell the loans without incurring
"Any deal coming now will come at slightly wider pricing of
at least 25 bps. Any bank that does not have enough flex
protection to take account of market movement is idiotic," the
third banker said.
The 115 million euro Term Loan B for Eden Springs is being
offered at 525 bps, a premium compared with other deals in order
to tempt investors as the financing is small and will be
"The pricing on Eden Springs is reflective of the current
market conditions. Investors want to be paid for risk and at 525
bps the tranche should clear," an investor said.
An OID on Intertrust Group's 200 million euro add-on
facility, which allocated last week, was increased and a ticking
fee introduced in order to get the deal done. The facility,
which pays 450 bps over Euribor was offered with a 98.5 OID,
increased from initial guidance of 99.5. Lenders were offered a
ticking fee of 112.5 bps, 30 days after the amendment's
effective date, after pushback from investors.
Last week, cable and telecoms investment company Altice
dropped a 200 million euro tranche following a lack of investor
demand, while the six-year covenant-lite dollar tranche was
increased to $1.035 billion from $700 million. The margin is 450
bps over Libor with a 1 percent Libor floor, while the discount
was moved to 94 from previous guidance of 98.
It was the second time the deal had been tweaked - at the
end of June, Altice reduced the maturity from seven years and
flexed up pricing as wider macro volatility impacted the deal.
Pricing on the dollar tranche was flexed to 450 bps and was
offered with a 98 OID, compared with initial guidance of between
375 bps and 400 bps with a 99.5 OID.
Another revised deal saw the 275 million euro loan
refinancing for Charterhouse-owned French call-centre business
Webhelp also close with a 25 bps flex on the institutional
tranche as a result of market volatility.
Lenders are digesting details of the 2.5 billion
euro-equivalent covenant-lite financing backing BC Partner's 3.3
billion euro acquisition of Springer, which is the largest
Western European buyout loan since the 9 billion pounds
financing backing Alliance Boots' buyout by KKR in 2008.
Credit Suisse, Goldman Sachs, JP Morgan, Barclays, Nomura
and UBS have underwritten the financing and are bookrunners and
mandated lead arrangers, with the first three banks taking left
lead on the deal. Given the scale of the loan package and the
cross-border element it is likely to test market capacity and
set a precedent for future financings, should it clear the
"In current volatility, deals are clearing the market at
different levels depends on size, the credit and whether people
know it. Springer, not withstanding current volatility, will be
a pretty good proxy for future deals this year and whether they
can get done. If it does clear it will give people confidence
that big, European covenant-lite deals can get done," a fourth
leveraged finance banker said.
($1 = 0.7792 euros)
(Editing by Christopher Mangham)