July 11, 2017 / 3:28 PM / a month ago

LPC-Stada banks consider €3bn debt launch before takeover outcome

LONDON, July 11 (Reuters) - Banks are considering launching syndication of a jumbo €3bn buyout financing for Stada before knowing the outcome of a takeover offer, after the German generic drugmaker backed a revised bid on Monday from buyout groups Bain Capital and Cinven, banking sources said.

The buyout firms sweetened their takeover offer by 25 cents per share to €66.25, approximately €16m above the €5.3bn prior offer that fell through. The private equity groups also lowered their acceptance threshold to 63%, after the last offer failed to win the backing of the 67.5% they had targeted, getting just 65.52%, Stada said.

Underwriting banks are now working out a syndication strategy for selling down the debt financing and a decision will be made within the next couple of weeks, the sources said.

“Launch now or wait until September? A decision needs to be made in the next couple of weeks as if it gets too late into July then the banks will probably have to wait until the end of August or September,” a senior banker said.

If the banks decide to sell before the outcome of the takeover is known, the financing could launch to the market before the summer break, the sources said.

The other option is for banks to launch the financing when there is more clarity on the takeover process, but this involves the banks holding large amounts of debt on their balance sheets for a longer period.

Another advantage of launching sooner rather than later is that Europe’s leveraged loan and bond markets are very receptive to new supply at the moment, despite a recent uptick in new deals.

Stada is expected to gain lots of attention, given its size and the opportunity for investors to put meaningful money to work in sizeable tickets, the sources said.

“There is an awful lot of debt to raise in quite a short space of time, in a market that is busy. However, whenever Stada comes it is big enough to command attention and it is a deal that people must look at,” a leveraged finance head said.

STRUCTURE

The financing is expected to comprise a €1.95bn seven-year senior secure term loan B facility; €485m of seven-year senior secured fixed rate bonds; €340m of eight-year senior unsecured fixed rate notes; and a €400m seven-year revolver.

The size and shape of the financing could alter slightly, given the revised offer, the sources said.

Banks also need to decide if they will apply the same timetable to the loans and bonds or alter their plans between the two asset classes, the sources said.

Whenever the deal syndicates, loan investors will be offered a ticking fee, which pays a proportion of the interest until the acquisition closes and the deal funds, while the bonds will fund into escrow, the sources said.

Banks will be eager for the takeover to be approved as they are set to receive €60m of fees altogether -- around €7.5m each -- based on a 2% underwriting fee, sources said.

A fee of this size is unprecedented so far this year after a flood of unprofitable and time consuming repricings and refinancings.

Barclays, Citigroup, Commerzbank, Jefferies, JP Morgan, Nomura, Societe Generale and UBS have underwritten the financing.

Barclays, Nomura and UBS are leading the TLB financing, Citi is leading the secured bond and JP Morgan is leading the unsecured bond.

Bain and Cinven were not immediately available to comment. Stada declined to comment.

Editing by Christopher Mangham

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