March 7, 2018 / 1:36 PM / a year ago

Unilever's Flora Food to close jumbo buyout loan

LONDON (LPC) - Flora Food Group, Unilever’s UNc.AS (ULVR.L) spreads business is set to allocate a €4.7bn-equivalent leveraged loan buyout financing after attracting around 80 major investors into the jumbo cross-border deal, banking sources said.

The company managed to raise €2.8bn-equivalent from European investors, comprising a £700m tranche and a €2bn tranche, the largest single-tranche euro-denominated term loan B since the financial crisis.

Last minute changes saw a dollar tranche increase by €100m-equivalent to US$875m, partly at the expense of unsecured bonds. At the same time, pricing on the dollars tightened to 300bp over Libor, at 99.875 OID from launch guidance of 325bp over Libor at 99.5 OID.

The increase in dollar loans pushed senior leverage slightly higher to 4.98 times from 4.89 times, while total leverage on the deal remained the same at 6.23 times, the sources said.


With around 80 investors taking varying size tickets in the loans, Flora captured a vast amount of liquidity from both CLOs and managed accounts, the sources said.

While the US market is significantly bigger, this deal is likely to fuel confidence in bankers and borrowers that a large amount of liquidity can be raised in euros and sterling from European investors.

“Raising €2.8bn-equivalent is probably about as big as it gets in the European market. In order to get that amount done, more was raised so a borrower could most probably raise a bit more with generous pricing but would top out at around €3bn-€3.5bn,” a senior banker said.

Pricing on the euros and sterling is set to close in line with initial guidance of 350bp over Euribor and 400bp over Libor, respectively. There is also a €475m-equivalent zloty tranche that is slightly smaller than the €500m-equivalent initially guided but it closed in line with initial pricing guidance of 350bp over Wibor.

The senior unsecured bonds, which now total €994m from €1.050bn, are yet to launch.


KKR agreed to buy the unit, which includes the brands Becel, Flora, Country Crock and Blue Band, for €6.83bn, it was announced in December.

A large number of investors bought the loan thanks to KKR’s track record in carve outs and turnarounds. It led investors to buy into the private equity firm’s growth story for the unit.

“Investors either believed KKR’s vision or they didn’t. It is a big business and there are inevitable carve out risks but in terms of sponsors they have good experience,” a senior investor said.

The unit is also highly cash generative, so whether investors believe in the equity story or not, many felt comfortable investing on a senior debt basis.

“It is not completely straight forward as a credit and there are things you have to get comfortable with. To a large extent investors are buying into KKR and their ability to improve the business in a reasonably tough market. But it is good for investors as it is cash generative so the senior debt looks pretty solid,” a second senior investor said.

A number of other investors took tickets on the basis that the loan is big and their portfolios needed diversity and exposure to the paper, which is expected to be highly liquid and one of the main flow names in the secondary loan market.


A few investors took issue with the loan and decided not to play, either because they didn’t believe in the business case or because they didn’t agree with aggressive documentation features such as the ability to repay the sub-debt first.

“It is over-levered with not enough equity from KKR, and the term sheet was terrible. One clause they wanted [enables] the repayment of the junior debt before the senior, which just totally goes against the principle of senior-junior lending,” a third senior investor said.

A fourth investor added: “Developed markets are declining, people are cooking less and eating less bread. We don’t expect a hockey stick recovery and it runs totally contrary to the macro-trend of eating less animal-based products. They talked a lot about improving the image of product, and mentioned how annoying it is that butter is thought of as much healthier.”

While documentation was seen as aggressive, the ability to repay the junior debt — that has also featured on other loans recently — is unlikely to be used in this instance, given the expensive call-protection that will offered on the bonds, one of the sources said.


The covenant-lite term loans are all offered with a 0% floor and are set to allocate on Wednesday at 99.875 OID on the dollars and 99.5 OID on the euros, sterling and zloty. They are all offered with 101 soft-call protection for six months.

The loans pay a ticking fee of 50% of the interest margin between 45-90 days and the full margin thereafter. They pay nothing up to 45 days.

The financing also includes a €700m 6.5-year revolving credit facility, paying 300bp over Euribor with a 0% floor.

Deutsche Bank and KKR Capital Markets led the debt financing, along with Credit Suisse on the dollar tranche.

BNP Paribas, Credit Agricole, Goldman Sachs, HSBC, ING, Lloyds, Mizuho, RBC, Societe Generale and UniCredit were bookrunners.

Commerzbank, Mbank, Mediobanca, Rabobank, Raiffeisen were mandated lead arrangers.

The loans were issued through Sigma Bidco BV and Sigma US Corp.

The company is holding off the bond launch for now, despite the fact that often bonds will launch towards the end of a loan syndication process in order that both instruments allocate at the same time.

“The bond info is not ready yet. Because it is a carve out they are waiting for the right audited numbers. The deal is also not closing until the close of Q2 so there is no rush to issue the bonds into escrow and pay them,” the senior banker said.

Editing by Christopher Mangham

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