LONDON, July 25 (LPC) - Apax Partners is considering its debt options for Norwegian satellite company Marlink after a proposed dividend recapitalisation and refinancing failed to find sufficient support in the leveraged loan market.
An opportunistic €622m leveraged loan for Marlink was withdrawn last week as selective loan investors continue to push back on aggressive deals amid a surge of supply, which could see the company turn to the private debt market for funds.
Marlink’s dividend deal failed to find sufficient appetite at a range of different price points due to concerns about the company’s business after it attracted a lower than anticipated credit rating.
Arranging banks JP Morgan, BNP Paribas, Credit Agricole, DNB and HSBC were not obliged to provide funds as the deal was being sold on a best efforts basis.
“It was an aggressive ask from the sponsor about taking out a good chunk of their equity at a time when there are some uncertainties in the business,” said one investor,
“Investors don’t need to do deals when the outlook is more uncertain and sponsors are trying to push up leverage.”
The transaction is the first European leveraged loan to be withdrawn in recent months since volatility hit the high-yield market, causing several issues to be postponed or withdrawn.
Investors are taking a tougher line on aggressive transactions after a surge in supply in May and June soaked up liquidity, leaving deals with lower pricing, aggressive documentation and credit issues exposed. Covenant-lite transactions now make up 77% of the market, according to S&P.
Institutional investors are also keeping their powder dry for several large buyouts that are expected to launch after the summer months including jumbo buyout loans backing the buyout of Thomson Reuters’s F&R unit (which owns LPC and IFR) and chemicals company AkzoNobel.
Marlink’s leveraged loan consisted of seven-year €280m and US$190m term loan B tranches, an eight-year US$100m second lien facility and a €92m 6.5-year revolving credit facility on June 28. The term loans were originally offered at 425bp-450bp over Euribor/Libor with a 0% floor and 99.5 OID.
Marlink, which provides satellite navigation and communication to one in three of the world’s vessels, received a B3 rating from Moody’s on July 9.
The ratings agency cited concern about Marlink’s asset-light and acquisitive model, as well as its high capital expenditure programme, which was likely to lead to negative cash flows.
“The initial pricing seems to have been unattractive for investors. A B3 rating carries a higher risk of default than a B2 where the majority of dividend recaps have happened.” said Alejandro Nunez, a vice president at Moody’s.
France-based Apax declined to comment.
Although investors’ appetite for aggressive deals may be waning, some dividend recapitalisations are still being launched.
French private education provider Inseec is in the market with a €275m TLB to fund a shareholder dividend and repay existing debt. The company has a higher B2/B credit rating, with a recovery rating of 3.
Marlink may turn to the private debt market for funds as non-bank financing continues to grow and increasingly large funds provide an alternative to the traditional leveraged loan market.
Apax opted to go down this route in 2016 when it financed Marlink’s buyout with a €270m unitranche financing from both Ares and Tikehau.
Private debt funds, which have historically focused on the middle market, are setting new records for the quantum of debt they are raising and are now able to provide a rival offering for bigger deals.
This week Ares announced that it had raised a record €6.5bn European private debt fund from institutional investors, which brings the total amount for Ares deploy to €10bn when combined with a leveraged facility.
Last year, firms such as ICG, Alcentra, Hayfin and BlueBay all broke their own firm’s record raise for private debt vehicles with each raising multi-billion funds.
The private debt market is not opposed to dividend recapitalisations, which are typically seen as a tougher ask in the primary leveraged loan market as they allow private equity firms to reduce their equity stakes and increase leverage levels.
One fund manager said: “Dividend recaps are, in themselves, not a bad thing but the use of proceeds is definitely a factor that needs to be taken into consideration when appraising a deal.”
“That fact that an owner may be derisking their investment through a dividend recap can be negative, but it may also be a normalisation of the balance sheet due to strong performance and historic cash generation,” he added. (Editing by Tessa Walsh)