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 A number of recent big, liquid international deals have been reverse
flexed to rein in pricing while the opposite has occurred on a
number of smaller, more illiquid deals where borrowers have had to
flex pricing wider to attract investor attention.
Austrian packaging group Constantia Flexibles reverse flexed twice
before closing to pay 375bp on the euros and dollars, from initial
guidance of 425bp-450bp, while Swiss packaging group SIG Combibloc’s
dual-denominated loan reverse flexed at the start of February to pay
425bp from initial guidance of 450bp-475bp.
Earlier this year, a financing for Altice’s <ATCE.AS> acquisition of
Portugal Telecom finalised at 425bp on both the euro and dollar
tranches, from initial guidance of 475bp-500bp on the euros and
500bp-525bp on the dollar tranche.
In stark contrast, investors are demanding concessions for a number
of smaller deals. The demands are increased when a borrower attempts
to go covenant-lite or opts to raise a less liquid currency such as
sterling, as investors perceive it harder to trade out of the paper
on Europe’s secondary loan market if they want to exit the credit
quickly.
Dutch software company Exact <EXAH.AS>, German elevator components
maker Wittur and online betting business Sky Bet were all small
covenant-lite financings that had to flex pricing wider to get the
deals done. A dollar portion of Exact has still not sold.
Other small deals in the market such as a 185 million euro ($207.68
million) covenant-loose leveraged loan financing backing Suzo-Happ’s
acquisition of Swedish peer Scan Coin and the refinancing of
existing debt has still not closed. Original commitments were due
Feb. 18.
A covenant-loose loan financing backing European investment group
Investindustrial’s acquisition of a majority stake in Southern
European car rental company Goldcar eventually closed in mid-Feb
paying 550bp with a 96.5 OID on a 275 million euro TLB, having
launched in December with initial guidance of 450bp at 99.
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“Bigger financings are for bigger companies and quite often bigger
companies are better credits, which is a massive over simplification
but it is often the case. The hardest deals are like Dennis Wise –
small, nasty and British,” a European loan banker said.
BUCKING THE TREND
Some smaller credits have been well received such as UK safety and
survival equipment maker Survitec which allocated on Feb. 27 having
double reverse flexed. The credit stood out from other smaller deals
this year as it had some supportive existing investors and was a
strong performer with a good track record, bankers said.
Once a few of the larger funds that are able to invest sizeable
commitments have decided against a deal, it can make it a tough
sell, especially without making some adjustments. The recent
widening of pricing on smaller deals could lead bankers to
reconsider the deals they go into or the terms they are prepared to
offer when pitching to borrowers.
“Some banks lost their shirts on a few of the recent smaller deals
which were not roaring successes. It could put banks off of doing
some of the smaller deals going forward,” a second loan banker said.
(Editing by Christopher Mangham)
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