LONDON, April 25 (Reuters) - Shareholders in advisory firm Environmental Resources Management (ERM), led by private equity firm Charterhouse, are set to take a $400 million dividend from the company as part of a wider $950 million refinancing of its debt, banking sources said on Friday.
A dividend recapitalisation, a process that refinances a company’s existing borrowings and adds debt to it to enable a dividend payment to be taken, was launched this week for ERM.
Deutsche Bank, BNP and HSBC are running the process.
Dividend recapitalisations are popular in the leveraged loan market as they allow owners to realize some value in their investment.
Charterhouse acquired a majority stake in ERM from Bridgepoint in 2011 backed with $525 million of loans. The remainder of the company is owned by about 490 partners working for ERM around the world.
ERM’s dividend recapitalisation comprises a $655 million, seven-year first lien term loan tranche of which $55 million is denominated in euros.
Both the dollar and euro tranches are expected to pay 450 basis points (bp) over Libor/Euribor with a 99.5 original issue discount (OID) - meaning the loan is sold at a 50bp discount to face value. There is also a $175 million, eight-year second lien loan expected to pay 700bp over Libor at 99 OID.
In addition, there is a $50 million revolver and $70 million acquisition facility.
The financing is on a so-called covenant-lite basis, which offers investors fewer protections.
Covenant-lite loans are common in the United States and have been more accepted by European institutional investors with the emergence of a greater number of cross-border transactions and euro carve-outs of large dollar financings on deals.
ERM has over 150 offices in 40 countries and territories employing more than 5,000 people. The company had total net revenue of $658 million in fiscal year 2013.
Charterhouse declined to comment. (Editing by Mark Potter)