LONDON May 16 Dutch coffee and tea company DE
Master Blenders' 7.5 billion euro ($10.29 billion) loan to
refinance a hugely successful deal in 2013 and raise new money
to back its merger with the coffee business of Mondelez
International will soak up a lot of excess liquidity in
the market, banking sources said.
The all-loan financing will be the largest leveraged loan
issued by a European borrower since the 9 billion pound ($15.12
billion) financing backing the Alliance Boots buyout by KKR in
2008, providing a boost to Europe's leveraged loan market which
has been plagued by a lack of M&A in 2014, according to Thomson
Reuters LPC data.
"Banks and investors are crying out for more event-driven
activity and the market feels ripe for more M&A. The Master
Blenders deal is exactly what the loan market needs," an
As part of the merger, Mondelez will receive around $5
billion in cash, as well as a 49 percent equity stake in the new
company, which will be called Jacobs Douwe Egberts. The M&A is
expected to close in 2015.
The $5 billion of cash is expected to be in the form of a
leveraged loan denominated in euros and dollars and will form
part of a larger financing package as Master Blenders refinances
a 3.3 billion euro loan put in place last year to back a 7.5
billion euro acquisition by Joh A Benckiser. The new loan is
also expected to include around 500 million euros of undrawn
JP Morgan, Bank of America Merrill Lynch and Morgan Stanley
are leading the financing, which is expected to launch for
syndication to other banks and institutional investors in the
The borrower is opting for an all-loan deal, shunning the
bond market to take advantage of the more flexible, private and
cheaper loan product.
"A loan can be prepaid at par as there aren't any non-call
features. It is also a private instrument which means the
borrower doesn't have to blast information about the company
across the world," a second investor said.
A bond would require financial statements that reflect the
combined businesses so the company would need to take out an
expensive bridge loan before it could be in the position to
issue bonds. Bonds also go into escrow and require the borrower
to pay a full margin straight away, whereas loans are cheaper as
they allow a borrower to pay a ticking fee.
The loan market has the capacity for such a large financing
but the deal will need to be priced correctly in terms of
interest margins and ticking fees if it is to tap all the
liquidity needed during primary syndication and maintain a good
level in secondary.
Loans in Dutch cable company Ziggo traded lower
on the secondary markets as it paid a margin of 300bp, tighter
than the other deals by the same owner Liberty Global. It is
also still paying a ticking fee.
"Bankers need to be cognisant of pricing as a lot of
investors will earmark a substantial amount of cash for the
Master Blenders deal which will not fund for quite a long time.
Lenders need to be compensated," the first investor said.
A third investor added: "Ziggo was a delayed process where
the deal got done but the loan traded off because it wasn't
funding and people were not being compensated. In Europe, a lack
of attractive ticking fees is a problem especially in Master
Blenders' case if investors have to wait until 2015."
In order to keep a large number of existing banks in the
deal and attract new banks, the deal is expected to be
covenant-loose and retain leveraged and interest covenants, as
opposed to being covenant-lite.
French cable company Numericable lost a lot of
liquidity when a number of banks couldn't cashless roll into its
new covenant-lite loans that backed its acquisition of Vivendi's
telecom unit SFR and refinanced existing debt.
Only a limited number of CLOs that invested in Master
Blenders' 3.3 billion euro loan last year will be past
reinvestment period but the company is still considering
allowing lenders to cashless roll into the refinanced loans via
If a cashless roll were to occur, there could be different
pricing for the refinanced money and new money.
"The US market has softened in recent weeks and pricing has
widened by 50bp-75bp as a result. Master Blenders could pay
around 350bp with a 75bp floor," a banker said.
The 2013 3.3 billion euro leveraged loan comprised a 1.25
billion euro TLA, a 300 million euro revolver; a 1 billion euro
institutional TLB2, all paying initial margins of 350bp over
Euribor, along with a 750 million TLB1 paying 375bp.
($1 = 0.7291 Euros)
($1 = 0.5954 British Pounds)
(Editing by Christopher Mangham)