RLPC-Pernod Ricard's 12 bln euro loan to test relationships

By Zaida Espana and Alasdair Reilly

LONDON, April 17 (Reuters) - The 12 billion euro ($19 billion) loan for Pernod Ricard's (PERP.PA) acquisition of Vin & Sprit (V&S) VSG.UL is set to test the company's banking relationships, banking sources said on Wednesday.

More details of the financing have emerged after the loan was launched at a bank meeting in Paris on Tuesday attended by around 50 banks and the company's board.

The loan is the largest non-investment grade corporate loan in Europe, and many are viewing it as a litmus test for European lending as capital remains scarce.

Plans to reduce the company's leverage and reduce its debt remain opaque, and bankers are focused on Pernod's strong cash flow generation and talk of the possible sale of some of the group's or Vin & Sprit's non-core brands to deleverage.

While most bankers are comfortable with the acquisition risk, the loan's interest margin of 90-125 basis points is viewed as low, given the company's high post-acquisition leverage levels of around six times pro forma EBITDA.

Details are emerging of the loan's covenants, which are said to be looser than in previous transactions and allow the group's subsidiaries more freedom to borrow.

The loan features a covenant that falls away once leverage dips below 4.5 times, according to banking sources, which could allow the company to make further acquisitions.

"This is an off-market deal; it's not priced correctly, so it will hang on relationships, but it's clearly a company people want to do business with, as it's a good performer and they do business often," one banker said.

Pernod has a strong borrowing track record, and relationship banks are expected to support the deal, though more junior lenders could hang back and attempt to pick up the paper more cheaply in the secondary market.

Banks are being asked to commit 500 million euros, 300 million euros and 150 million euros for fees of 75 bps, 60 bps and 45 bps.

"Pernod is borrowing for the third time, and they've always delivered, but it's a fairly brusque approach to relationship banking," another senior banker said.

One banker said the large commitments required were difficult as further selldown was far from assured due to banks' limited liquidity, which is depressing secondary prices.

"In this market there is zero chance of oversubscription, and all banks will be holding more than they want, which will hit secondary prices," a senior banker said.

Despite the worries about the thin pricing, the acquisition risk is highly valued in the market, and the group's borrowing history has also assuaged some concerns, with some banks looking to consolidate relationships with the borrower.

"This is the least risky deal Pernod has ever done; they're buying a successful brand, there is no overlap, and the distribution network is already in place," one banker said.

The loan is being arranged by bookrunners BNP Paribas, Calyon, JP Morgan, Natixis, Royal Bank of Scotland and Societe Generale. (Reporting by Zaida Espana and Alasdair Reilly, editing by Will Waterman)