LONDON Bankers are preparing a debt financing of around €2.6bn (£2 billion) backing a potential private equity buyout of publicly listed German generic drugs and consumer care group Stada (STAGn.DE), banking sources said on Tuesday.
Stada said on Monday that it had started talks with potential bidders Cinven Partners and Advent International, after the private equity firms showed interest.
Banks are eager to underwrite a large and profitable debt deal, which would give lenders a welcome break from the low-earning task of repricing and refinancing existing loans.
“Every bank is looking at Stada. You don’t get a jumbo trade very often so as soon as something hits the screen like this, you get on it,” one source said.
Around €2.6bn of debt financing would give a total leverage ratio of around 6x-6.5 times, based on Stada’s approximate Ebitda of €400m, sources said.
The debt is likely to be denominated in euros and the large size of the financing means that it could be split between leveraged loans and high-yield bonds, they added.
Europe’s leveraged loan market could have the upper hand, sources said, as public to private acquisitions can take a long time to close.
Loans are more flexible and have less rigid accounting standards than bonds and can be arranged either as a bridge financing or syndicated to investors with a ticking fee.
While the liquid loan market has the capacity to bank a jumbo deal, several other large loans are also on the horizon, including the potential sale of German metering groups Techem and rival Ista.
The two potential sales would require around €2bn of financing each and, if successful, could quickly reverse technical market factors that have seen demand outstrip supply for around a year.
“Europe’s leveraged loan market could go to feast from famine very quickly,” the first source said.
Stada said that Cinven was offering 56 euros per share, which values the company at almost €3.5bn. It did not disclose the price proposed by Advent.
Other cash-rich buyout firms including Bain, BC Partners, CVC and Permira are also interested in Stada, sources said.
Stada was not immediately available to comment. Bain, BC Partners, CVC and Permira declined to comment.
Founded in 1895 in Dresden as a pharmacists' cooperative, Stada is seeking to expand its non-prescription consumer care business.
Its generic drug business is under price pressure as medical insurers in Germany, its largest market, seek bulk procurement deals at low prices.
(Editing by Tessa Walsh)