February 8, 2018 / 3:59 PM / 5 months ago

LPC-Lenders compete to offer debt on Care UK unit sale

LONDON, Feb 8 (Reuters) - Banks and direct lenders are competing to provide debt packages of around £250m to back a potential sale of the residential care business of Care UK in the latest example of how the two different sets of lenders are going head-to-head for the same work.

British buyout firm Bridgepoint delisted and acquired Care UK in 2010 in a £414m (US$584m) deal, financed by a £250m high yield bond. It has now mandated Rothschild to sell the unit.

First round bids are due in an auction process on March 13, the sources said.

A lender education process run by Rothschild has taken place and bankers and direct lenders are working on debt financings totalling around 5.0-6.0 times Care UK’s Ebitda, which is being marketed at approximately €42m, the sources said.

A leveraged buyout structure is being considered but an infrastructure or opcp/propco financing could also be used, the sources said.

“They education process went pretty wide and they are considering everything. There is an acknowledgement the financing could be of interest to a number of different lender types,” a direct lender said.

Traditionally, financing deals have either attracted syndicating banks or direct lenders, but now it is more common to see both sets of lenders competing for the same work as direct lenders are able to offer larger, less expensive financings and banks have come down the food chain in search of deals.

Between €250m-€400m is the sweet spot of where these two sets of lenders compete, the sources said.

A number of direct lenders have raised senior loan funds, in addition to unitranche funds, which have lower return targets.

Borrowers are happy to let the different types of lenders compete with each other in order to get the best possible financings in terms of pricing, structure and documentation.

“There is a lot of overlap in competition now. Ultimately all these markets are linked and they can’t price in a vacuum. They are mindful of relative value in adjacent asset classes. As absolute return levels come down, direct lenders are taking lower returns than they took two years ago,” the direct lender said.

Direct lenders look to deploy capital in large chunks on behalf of a diverse range of LPs whereas banks underwrite deals to distribute to investors. In both cases, borrowers will pay a fee and ultimately end up with a similar outcome, the sources said.

“Care UK feels like a bank deal — the banks are there but we know direct lenders can do very large deals as they have done in the past,” a syndicate head said.

Last year, notable deals that were done by direct lenders to the disappointment of some banks included Permira’s €275m loan to Soho House and GSO’s €300m backing of the Consolis Group buyout, sources said.

Care UK operates 118 care homes with close to 8,000 beds.

Editing by Christopher Mangham

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