By Edith Fishta
The flood of liquidity in the European leveraged loan market is increasingly speeding up the process to offload new issuance. A deepening imbalance between supply and demand has left a number of loan investors struggling to deploy their funds or even get a look at deals before they are fully spoken for.
Sizeable cross-border deals are being snapped up the moment they launch, while many smaller loans never reach general syndication because they are completed during what is known as the early-bird phase. The early bird round is a pre-marketing stage during which arranging banks agree with a handful of potential anchor accounts on the basic terms of a loan, such as margins, original issue discounts (OIDs) and tranche sizes for dual-currency deals.
But several recent deals never even got past the initial kickoff as strong demand for loans meant that the initial investor group took down the entire deal.
Case in point, UK IT group Northgate Public Services recently allocated a 237.5 million British pound sterling (GBP) denominated term loan at an OID of 99 to investors privately, bypassing general syndication altogether. The loan, which backed the group’s buyout by private equity group Cinven, paid Libor+ 575bps and came with a 1 percent Libor floor. Bank of Ireland, Credit Agricole and Goldman Sachs were bookrunners, mandated lead arrangers and underwriters on the deal.
Similarly, only a small portion of the UK-based safety-equipment manufacturer Survitec’s buyout debt made it to wide syndication as arrangers gained enough support from early-look investors. The GBP 250 million-equivalent financing is guided at Libor+ 525bps/Euribor+ 475bps.
The list of deals getting done in private negotiations is getting longer and could soon count Nordic IT group Evry, which sources say is garnering high demand for its LBO financing. The group launched an estimated 625.3 million-euro equivalent multicurrency financing last week to back its buyout by Apax Partners.
Given that early birds are effectively private negotiations, relationships are key. The larger funds and existing investors in a credit that is refinancing will have first choice at participation, leaving credit funds who lack those strong links with complaints about missed opportunities from not being shown enough deals.
While a spate of giant deals with a strong US footprint did recently hit the market through general syndication, they did little to alleviate the shortage of loan paper.
Deal-hungry investors jumped on Altice International’s highly anticipated 825 million-euro equivalent seven-year first lien term loan B as soon as it touched down in syndication territory. The package, which part-financed the France-based global telco asset operator’s acquisition of Portugal Telecom’s domestic operations, allocated within days after launching. Demand allowed the arranging banks to price the deal at a lower interest rate than was initially expected.
Other benchmark deals from Swiss aseptic packaging group SIG Combibloc, US specialty chemicals groups ANGUS and MacDermid, as well as Dutch cable group Ziggo also allocated swiftly, emptying out the pipeline. That leaves investors with less than ten active loan syndications to look at the moment.
Edith Fishta is a reporter covering leveraged loans for Debtwire Europe in London. She can be reached at Edith.Fishta@debtwire.com.
