LONDON Oct 18 Cross border leveraged loans that
comprise euro-denominated facilities and US dollar-denominated
facilities are seeing the euros price cheaper than the dollars,
as borrowers take advantage of the abundant liquidity on offer
in the European market.
Recent cross border financings for companies including
French telecoms group SFR and global specialty chemicals maker
Platform Specialty Products, which priced the euros inside of
the dollars despite launching at the same levels, also increased
the size of their euro tranches at the expense of the dollars
"This is a function of liquidity. There are negative rates
in Europe and low yields, which is in part driving CLO issuance
and managed accounts. If there is liquidity you have to find a
home for it as you are not paid for holding it. It is hardly
surprising there is more demand for euros in the leveraged loan
market and euros are coming in cheaper than dollars," a banker
SFR increased the euro portion of its 2.3bn-equivalent term
loans by 200m to 700m and tightened pricing to 300bp over
Euribor with a 0.75% floor at par, from original pricing of
300bp-325bp with a 0.75% floor at 99.75 OID. The dollar term
loan priced at 325bp over Libor, with a 0.75% floor at 99.75
Platform increased the euro portion by 150m to 433m and
tightened pricing to pay 375bp over Euribor with a 1% floor and
a 99.75 OID, while the dollar tranche was reduced to US$1.475bn
and paid 400bp over Libor with a 1% floor and a 99.5 OID.
Investors have accepted more aggressive terms on
refinancings and repricings in a bid to avoid repayments, but
borrowers are also getting away with tighter terms for euro
loans during new money raisings, as investors clamber to put new
money to work.
German packaging company Klockner Pentaplast opted to raise
more euros with an 85m add-on term loan, alongside a
refinancing of its dual-currency term loans. The euro loans
tightened inside of the dollars during syndication.
Israeli furniture maker Keter Group dropped a dollar tranche
to pursue a euro-only syndication of its 790m financing backing
its buyout by BC Partners and PSP Investments, following very
strong European demand.
"The European market remains strong. Some wind has been
taken out of the US market due to increased deal flow," a second
banker said. "Europe hasn't had the same deal flow, which has
been exacerbated by repricings. New loan flow is cat nip to
FROM THE START
While the demand for paper in Europe has prompted a change
to more aggressive terms for the euro loans during syndication,
some cross border deals are now deciding to launch with a
Global tea and coffee company Jacobs Douwe Egberts is
raising a 1.1bn term loan and US$903m term loan to partially
repay existing debt. Pricing on the euro portion is guided at
250bp-275bp over Euribor while the US dollar tranche is expected
to price at 275bp. Both are offered with 0.75% floor and 99.875
"This is simple supply and demand. We are back to 2007
levels on some deals," the first banker said.
Some investors and bankers are questioning the
sustainability of the pricing situation in Europe.
"This is a short term phenomena. There are a number of CLOs
on stream and not a lot of product so Europe is tighter than the
US and borrowers can get away with that for now but it is a
limited window as assets are not priced where CLOs can love
them. Warehouses can do anything, but longer term they are
creating a problem for themselves," an investor said.
(Editing by Christopher Mangham)