IFR Magazine - October 27, 2018

LOANS

China 58 Hong Kong 58 India 59 Indonesia 60 Japan 60 Macau 61 South Korea 61 France 62 Germany 63

Luxembourg 63 Canada 63 United States 64 Leveraged Loans 64

„ FRONT STORY EUROPEAN LEVERAGED MARKET

Market gears up for ‘juicy January’

Following a hiatus, auction processes are picking up

Bankers expect new transactions leading into new year

The European leveraged loan market is
looking at a thin deal pipeline to the end of
the year and hoping for a busier start to 2019
after a very patchy October, despite strong
INVESTORûDEMANDûFORûmOATING
RATEûLOANS
A recent slowdown in M&A activity in
Europe has left many lenders scratching
around for deals as auction processes start to
pick up slowly and generate a pipeline of
NEWûTRANSACTIONSûLEADINGûINTOûTHEûNEWûYEAR
High valuations and toppy stock markets
have put a dampener on sale activity as
PRIVATEûEQUITYûlRMSûHAVEûSTRUGGLEDûTOûMAKEû
target returns and regulators have taken aim
ATûMOREûHIGHERûLEVERAGEûLEVELS

September’s leveraged loan pipeline hit an
ANNUALûHIGHûOFû53BNûINû3EPTEMBERûANDû
ISûNOWûSTANDINGûATû53BNûACCORDINGûTOû
LPC data, after the recent conclusion of
SEVERALûJUMBOûLOANSûINCLUDINGûAû53BNû
Term Loan B backing the buyout of REFINITIV,
formerly Thomson Reuters’ F&R unit that
INCLUDESû)&2
“The market went to sleep for M&A in July
and August, which is going to mean two
BLANKûMONTHSû;INû/CTOBERûANDû.OVEMBER=û
There are always bits and pieces, but it’s
GOINGûTOûBEûVERYûVERYûSLOWvûAûBANKERûSAID
A second banker said: “There has been a
BITûOFûAûHIATUSv
'LOBALû-!ûVOLUMEûOFû53BNûINûTHEû
lRSTûTHREEûQUARTERSûWASûûLESSûTHANûFORûTHEû
SAMEûTIMEûLASTûYEARûASûAûBUSYûlRSTûHALFûOFFSETû
AûFARûSLOWERûTHIRDûQUARTERû4HIRD
QUARTERû
VOLUMEûOFû53BNûWASûûLOWERûTHANûAû
year earlier and the lowest quarterly volume
SINCEûTHEûlRSTûQUARTERûOFûûACCORDINGûTOû
,0#ûDATA
)Nû%UROPEû-!ûLENDINGûINûTHEûlRSTûNINEû
MONTHSûWASûûLOWERûTHANûINûTHEûSAMEû
PERIODûOFûûANDû53BNûOFû-!ûLOANû

VOLUMEûINûTHEûTHIRDûQUARTERûWASûûLOWERû

THANûAûYEARûEARLIER

PICKING UP

As auction activity starts to pick up again, a

FEWûLARGEûDEALSûAREûINûTHEûOFlNGûALTHOUGHû

some of these transactions may not reach

THEûMARKETûUNTILûTHEûlRSTûQUARTERûOFû

The biggest transaction is the potential

buyout of JOHNSON CONTROLS INTERNATIONAL’s

power solutions business, which is a US

business but is expected to have a large euro

COMPONENTûIFûPRIVATEûEQUITYûSUCCEEDS

The business, which makes batteries for

cars, could fetch about US$12bn, and a debt

lNANCINGûOFûMOREûTHANû53BNûISûONûTHEû

CARDSûBANKERSûSAID

In Europe, bankers have their eyes on

NESTLE’s skin health unit, which could sell for

ABOUTû3&RBNûõBN    ûANDûISûEXPECTEDûTOû

COMEûTOûTHEûMARKETûINûTHEûNEXTûFEWûMONTHS

Plastics packaging maker RPC GROUP is in

TALKSûWITHûPRIVATEûEQUITYûlRMSû"AINûANDû

Apollo, which have until November 5 to

MAKEûAûlRMûOFFERû4HEûCOMPANYûHASûAû

MARKETûVALUEûOFû53BN

UNITED TECHNOLOGIES CORP is exploring a sale

of its CHUBB FIRE & SECURITY division for more

THANû53BNû4HEûCOMPANYûHASûUNTILû

November 14 to decide whether it will break

ITSELFûUPû"ANKûOFû!MERICAû#ORPûISûRUNNINGû

THEûAUCTIONû2EUTERSûREPORTED

Generic drugs maker Stada and a number

OFûPRIVATEûEQUITYûlRMSûINCLUDINGû"#û

Partners, CVC and PAI, are also competing

OVERûTHEûõBNûSALEûOFûUPSAûTHEûOVER

THE

counter drugs business of pharmaceutical

COMPANYû"RISTOL

-YERSû3QUIBBû2EUTERSû

REPORTED

0RIVATEûEQUITYûlRMû!STORGûANDû-ONTAGUû

are in the process of selecting banks for a

õMûSYNDICATEDûLOANûlNANCINGûTHEûBUYOUTû

of health devices manufacturer NEMERA,

which could happen before the end of the

YEAR

“Processes are under way, but there will be

AûCUTûOFFûINûTHEûlRSTûORûSECONDûWEEKûOFû

$ECEMBERûFORûLAUNCHESû7EûHAVEûAûNICEûJUICYû

January if transactions happen as planned,

but I’m speculating a lot because after all

THISûISûLEVERAGEûWORLDvûTHEûlRSTûBANKERûSAID

Syndication is under way for a number of

MULTI

CURRENCYûCROSS

BORDERûLOANSûTHOR

INDUSTRIES, a US recreational vehicle maker,

HASûLAUNCHEDûAû53BN

EQUIVALENTûLOANûTOû

SUPPORTûITSûPURCHASEûOFû'ERMANY

BASEDû

%RWINû(YMERû'ROUP

UNCONVENTIONAL OPTION

Despite the slowdown in M&A activity, the

loan market is still facing stiff competition

FROMûUNCONVENTIONALûLENDERS

Hearing aid maker SIVANTOS dropped a

HIGH

YIELDûBONDûOFFERINGûANDûOPTEDûFORûAû

õMûSECOND

LIENûFACILITYûTOûlNANCEûITSû

MERGERûWITHûPEERû7IDEXû4HEûlNANCINGûALSOû

INCLUDESûAûõMû4ERMû,OANû"

“If you’re getting pretty much the same

mEXIBILITYû;ONûLOANSûASûBONDS=ûFROMûAû

covenant perspective then it’s worth

CONSIDERINGvûAûBANKERûONûTHEûDEALûSAID

$EMANDûFORûmOATING

RATEûLOANSûINûAûRISINGû

interest rate environment has protected the

loan market so far from the volatility that hit

THEûWIDERûMARKETSûINû/CTOBER

This immunity is further boosting the

appeal of loans, which issuers are currently

FAVOURINGûASûTHEYûAREûMOREûmEXIBLEûANDûLACKû

the onerous call protection required by bond

INVESTORS

2ECORDûAMOUNTSûOFûMONEYûRAISEDûBYûNON

BANKûLENDERSûMEANûTHATûSECOND

LIENûLOANSû

are also a viable bond alternative as direct

lenders look for opportunities outside the

CONGESTEDûMIDDLE

MARKETûSPACE

,0#ûDATAûSHOWûSECOND

LIENûVOLUMESûROSEûTOû

53BNûINûTHEûTHIRDûQUARTERûANûINCREASEû

FROMû53ûINûTHEûSECONDûQUARTERûANDûTHEû

HIGHESTûQUARTERLYûVOLUMEûSINCEûTHEûlRSTû

QUARTERûOFû

David Brooke

US$26bn of M&A loan volume

in the third quarter was 45%
lower than a year earlier

“Processes are under way, but

there will be a cut off in the first

or second week of December for

launches”