LONDON, June 23 (Reuters) - A recent surge in refinancings, repricings and recapitalisations has been fuelled by a lack of new money deals as borrowers grasp the opportunity to improve debt financings and maximise returns from portfolio companies.
Banks are pitching to sponsors ways to improve debt in existing companies, despite a number of credits having already re-jigged their debt last year. Although unpopular with investors, the deals are getting approved as the alternative would be a repayment, something investors do not want for lack of anything else to invest in.
“In the absence of new money deals, sponsors are going back to the drawing board and revisiting portfolio companies to see if they can improve borrowings,” a leveraged finance banker said.
Luxembourg-based satellite TV business M7 and French call centre firm Webhelp have both recently tapped the loan market to back dividend payments to their private equity owners. M7 took a dividend payment last summer, while Webhelp conducted a refinancing last year.
Meanwhile, Advent International is seeking to take an 80 million euro ($108.60 million) dividend from its Dutch medical supplier Mediq, reprice existing debt and remove some financial covenants.
“A dividend and repricing at the same time is aggressive but this is the market to do it in,” a second banker said.
Advent took Mediq private in 2013 backed with a 740 million euro financing and took a 230 million euro dividend at the end of last year after raising extra debt and selling its Polish business.
Mediq will use cash on balance sheet to pay the dividend, increasing leverage to 4 times earnings, taking it back up to the level when Advent bought the business. Leverage is currently around 3.5 times.
“Mediq is a very cash generative business with very little capital expenditure so every bit of profit turns into cash,” a third banker said.
At the same time Mediq is seeking to shave 50 basis points (bps) off interest margins so a Term Loan A, revolving credit and capital expenditure facility will pay 375bps from 425bps and a Term Loan B will pay 400bps from 450bps.
This is the second time Mediq has repriced debt after reducing margins at the end of last year by 50bps.
Mediq is also seeking to remove two covenants to become covenant-loose, lessening the series of financial tests it needs to comply with in regards to its borrowings and reducing protections for lenders.
Recent repricings have occurred for companies including German utilities metering firm Techem and German motorway services operator Tank & Rast.
More dividends, repricings and refinancing are due to launch in the coming weeks and some are getting more aggressive as sponsors push for better terms on lesser performing companies. Dividend recapitalisations are being done on a best effort basis currently but some sponsors are now requesting that the deals be underwritten. ($1 = 0.7366 Euros) (Editing by Christopher Mangham)