Refinitiv, Akzo buyouts hand more ammunition to private equity firms

NEW YORK (LPC) - The overwhelming response to the US$13.5bn buyout loan and bond financing for Refinitiv and the similar US$7.6bn debt financing backing Akzo Nobel’s spin-off of its chemicals business looks set to have far-reaching consequences for the debt markets.

A rising tide lifts all ships, and the level of demand revealed by Refinitiv and Akzo is boosting demand for other deals, including the US$5.05bn loan backing Envision Healthcare’s buyout. It is also helping banks to make money on deals that they would otherwise have struggled to sell at profitable levels during tougher markets in the summer.

“There’s a collective sigh of relief across the underwriting street that these deals worked brilliantly. It’s really consequential. These were big and risky deals and they’ve gone much better than expected,” a global head of debt said.

The rousing results are likely to boost secondary pricing and will intensify pressure on primary pricing and other terms and conditions, after investors won a reprieve in the summer from aggressive transactions amid a surge in supply.

The SMi100, an index that tracks the 100 most widely held loans, stands at 98.73, the highest point since February. About 42% of US loans are now trading above par, according to LPC data. Average US high-yield bonds, meanwhile, have rallied sharply over the past couple of weeks to Treasuries plus 325bp, or just 3bp off post-crisis lows, according to ICE BAML data.

“We can see some tightening in the secondary market because there aren’t as many new issues,” a portfolio manager said.

The successes could also herald a more aggressive underwriting era as private equity firms squeeze arranging banks harder, which could open the door to another round of opportunistic repricings, refinancings and dividend recapitalizations that allow sponsors to take advantage of weak documentation.

“The next stuff behind the scenes is going to be punchy,” the global debt head said.


While the results are undeniably good for private equity firms, they may not be good for investors who are increasingly nervous about aggressive deals as an economic downturn draws closer at the end of an unusually long economic cycle.

With Refinitiv, Akzo and Envision, technical factors – primarily huge demand and a small visible pipeline of deals – overwhelmed any specific credit concerns and fears about aggressive documentation that allow sponsors to extract dividends quickly or make transformative asset sales and acquisitions without investors’ consent.

The three jumbo loans, each of which are capital-stretching, represent half of the forward calendar, which is already looking thinner. Worries about future supply encouraged investors to join the big, liquid deals in droves, particularly as new money carve-outs have previously proved to be particularly profitable.

“The market is strong and people are worried about the calendar,” a banker said.

One large deal that could materialize soon is the financing to fund the buyout of Johnson Controls International’s power solutions business. The unit is on the block and attracting private equity interest. The business makes advanced batteries for cars and could fetch US$12bn and a debt financing of more than US$10bn on the cards.


The trio of jumbo loans have cemented primary pricing in a 350bp-450bp context and set a dollar bond benchmark at around 8%, bankers said, which should allow banks to clear any existing underwritings off their books at a tidy profit.

Banks are generally offering 125bp of flex language on first-lien loans and 150bp of flexibility on second-lien loans and bonds to allow for another possible market shift, a US head of leveraged finance said.

“A bumpier ride at that price point would have tempered global markets’ enthusiasm; now these deals have fueled it,” the global debt head said.

In the US loan market, demand is pushing into smaller deals such as the financing for’s buyout by Siris Capital. The company increased the size of a first-lien tranche to US$1.095bn and was priced at 375bp, under guidance, along with a US$420m second-lien loan at 775bp.

There is ample investor demand eager for new paper, with more than US$94bn of US CLOs issued already in 2018, as well as US$15.15bn of inflows into loan mutual funds, including 11 straight weeks of additions until September 12, according to LPC and Lipper data.

Nonetheless, underwriters warn that similar terms are unlikely to be achieved on smaller deals, while bankers warn that not every iffy deal will fly.

“Many investors have put conditions around many orders many times. I still have to deal with them and they need good deals and good structures – we still have to be responsible,” the global head of debt said.