September 4, 2015 / 2:50 PM / 2 years ago

LPC-European LBO activity stays strong

LONDON, Sept 4 (Reuters) - Leveraged loan bankers are working on financings totalling up to 12 billion euros ($13.34 billion) to back a number of new buyouts that are in the auction phase as Europe's leveraged loan market becomes increasingly attractive amid wider macro volatility.

Global market instability stemming from China's stock market rout and tumbling commodity and oil prices have led many sellers to broaden their exit route opportunities in order to extract the best value.

A number of sellers are running dual-track processes to engage with as many buyers as possible. Such deals include those of British payments processing firm Worldpay (IPO-WORLD.L), French smartcard maker Oberthur Technologies, Swedish chemicals firm Perstorp and Ardagh's metal can packaging business Oressa.

"A lot of the companies up for sale were firmly IPO candidates until about a month ago," a loan banker said. "The only reason they are coming back as potential buyouts is because of the volatility. It is attractive for a seller to get rid of 100 percent of a business rather than listing, but it depends on expectations and how much buyers are willing to pay."

Europe's leveraged loan market has been crying out for large-scale M&A, which is down significantly from last year with only a handful of deals taking place so far in 2015, including purchases of Saint-Gobain's glass bottle unit Verallia and German perfume and cosmetics retailer Douglas.

"No one knows when the IPO market will open," a second loan banker said. "There are a lot of IPO financings being held at bay until there is a bit more clarity on the situation and the market."

Bankers are working on leveraged debt financings to back the potential sales with about 4.5 billion euros required for a buyout of Worldpay. Ardagh's Oressa unit would require some 1.6 billion euros of debt, while bankers are working on deals of around 1 billion euros each for Oberthur and Perstorp.

Bankers are also working on financings to back the potential sales of other companies, including 650 million euros of debt for French call centre business Webhelp, after UK private equity firm Charterhouse mandated Deutsche Bank for a sale of its 60 percent stake.

UK petrol station operator Euro Garages and Airbus's defence unit could need up to 700 million pounds ($1.06 billion) and 700 million euros of debt, respectively. Bankers also lined up about 450 million euros of debt to back a buyout of Dutch lingerie firm Hunkemoller, and although the process is proving slow a sale or refinancing could still go ahead.

Other smaller potential financings out there include around 370 million pounds for a potential sale of British retailer Tesco's customer data business dunnhumby; 300 million euros for German automotive parts maker Al-Ko; and 180 million euros for Irish payments business Fintrax.

COMPETITIVE BID

Private equity buyers have become quite competitive compared with corporate buyers, many of whom have suffered from the wider volatility. With buyout firms cash-rich and needing to spend, they could offer quite attractive propositions to win some of the auction processes.

"With continued volatility there is a greater likelihood that you end up hitting a bid on a sales process," a third banker said. "Trade or publicly listed buyers have been hit as the currency of their own equity has been affected by market volatility.

"As their equity is less valuable they will be prepared to pay less as comparable market valuations can't justify as high a price. That makes private equity bidders that have a lot of cash to put to work all of a sudden far more valuable."

In September, 10 leveraged loans totalling 4.5 billion euros are expected to be launched. Although pricing could widen slightly to take into account the volatility, investor appetite remains strong. [ID: nL5N1172NJ]

If private equity is successful during auction processes, buyout loans could hit the market around November, which could lead to a very busy and profitable fourth quarter. Depending on how many deals hit the market, lenders hope renewed deal flow will prompt more CLO issuance in order to keep the market liquid.

"The loan market has proved it has more than enough capacity to deal with a large number of deals coming at the same time, even if some are large. Investors will be looking for healthier deal flow, which will give confidence to the market and confidence to raise more money," the third banker said. ($1 = 0.8998 euros) ($1 = 0.6588 pounds) (Editing by Christopher Mangham)

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