February 26, 2020 / 3:51 PM / a month ago

Two banks line up €3.25bn loans for Coty unit sale

LONDON, Feb 26 (LPC) - Credit Suisse and UniCredit have lined up around €3.25bn of leveraged loans to back a potential sale of the hair and nail care unit of US-based cosmetics maker Coty, banking sources said.

Coty is exploring the sale of its business unit that houses brands such as Wella, Clairol and OPI as part of its plan to whittle down its portfolio and cut debt.

Bids are due in the first round of an auction process on March 2 and the sale is attracting both private equity and trade buyers, including consumer goods giants Unilever and Henkel and buyout funds such as Advent, Bain, Blackstone, CD&R, Cinven, CVC, CPPIB, GIC, KKR, Partners and TDR, the sources said.

All the potential buyers either declined to comment or were not immediately available to comment.

“We are still trying to work out who is not around it. It is a global trade so global, US and European sponsors are trying to decide whether to put indicative bids in. There are around 29 names on the list,” a senior banker said.

The €3.25bn of leveraged loans from Credit Suisse and UniCredit is a staple financing that will be available to any potential bidder to give them certainty of funds.

The staple financing totals around 6.5 times the unit’s approximate €500m Ebitda and consists of first and second-lien loans, the sources said.

“It is super punchy leverage because it is not one business but a collection of different businesses that are not all aligned. Whoever buys it is going to have to take the business apart and put it back together again so bankers need to work out what it might look like and then what leverage it can support,” the senior banker said.

A syndicate head added: “Retails is a tricky sector but it is an attractive proposition with some high profile brands and it is gaining a lot of interest. It is also an event-driven financing, which let’s face it, everyone has been screaming out for.”

FRUSTRATING TIME

Bankers and investors in Europe’s leveraged loan market have been desperate to invest in new paper in a bid to put a meaningful amount of money to work, following a lack of M&A and several opportunistic financings, as borrowers take advantage of the supply/demand imbalance to improve the borrowing terms on their existing portfolios.

Coty said it would use the proceeds from any of the transactions to pay down debt and return excess cash to shareholders.

The company, which is majority owned by German conglomerate JAB Holdings, hired Credit Suisse to run a sale process for the units, which generated about US$2.7bn in net revenue in fiscal 2019.

Last year, JAB raised its stake in Coty to 60%, giving it a firmer grip on the company. (Editing by Christopher Mangham)

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