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LONDON, June 27 (Reuters) - United Biscuits has launched a 725 million pound ($1.1 billion) refinancing to replace expensive junior debt with lower priced senior leveraged loans, banking sources said on Thursday.
The move will leave the firm behind brands such as McVitie's, Jaffa Cakes and Twiglets with leverage of around 3.5 times earnings, a relatively low level which could pave the way for an eventual initial public offering or sale, bankers said.
Goldman Sachs and JP Morgan are running the process, which launched Thursday morning, and a bank meeting is set to take place on July 1 in London, they added.
Private equity firms Blackstone and PAI bought United Biscuits in 2006 for 1.6 billion pounds, backed by 1.07 billion pounds of senior loans, and 335 million pounds of junior debt split between second lien and mezzanine loans, according to Thomson Reuters LPC data.
A portion of United Biscuits' debt was paid off when it sold its KP Snacks division to German snack maker Intersnack last year
United Biscuits is now looking to use around 150 million pounds of cash on its balance sheet to repay some debt and refinance the rest, which consists of approximately 500 million pounds of senior term loans; 160 million of second lien loans paying around 400 basis points (bps) over Libor and 140 million of mezzanine loans paying 775 bps over Libor, bankers said.
United Biscuits was not immediately available to comment and Blackstone and PAI declined to comment.
The new 725 million pound deal will include a seven-year senior term loan B facility split between a 550 million pound tranche paying 500 bps over Libor and a tranche in euros equivalent to 100 million pounds paying 425 bps over Euribor. There will also be a 75 million pound revolving credit facility paying 400 bps over Libor, bankers added.
Existing investors that are coming to the end of their reinvestment periods will be given the option to roll into the new refinanced deal on a cashless basis via an amend and extend process, bankers said.
The company, whose brands also include Jacob's, Carr's and Mini Cheddars, is a well-known credit in the European leveraged loan market and investors are eager to do the deal. However some may have an issue as a large portion is in sterling and currency swap costs of over 100 bps may make it too expensive. Investors that do not go into the deal will be repaid, bankers added.
Commitments for the new deal are due in mid-July.
$1 = 0.6520 British pounds Editing by Mark Potter