April 3, 2018 / 11:18 AM / 7 months ago

Jumbo deal for Akzo Nobel unit LBO stirs debt markets

LONDON, April 3 (LPC) - Banks have lined up as much as €7.3bn-equivalent of debt to back the buyout of Akzo Nobel’s chemicals business, the latest jumbo cross-border leveraged financing to hit the loan and bond markets.

Akzo Nobel is selling the business to Carlyle Group and Singapore’s GIC for a slightly better than expected enterprise value of €10.1bn.

Barclays, HSBC and JP Morgan are leading the financing alongside Citigroup, Credit Suisse, Deutsche Bank, RBC and UBS. Other banks could also join, given the deal’s vast size.

The new-money deal is set to be well received by investors, keen for fresh paper to put CLO and managed-account cash into.

“It’s been long awaited by the markets and is one that everyone will want to get a piece of,” a syndicate head said.

The deal follows soon after the €4.7bn-equivalent leveraged loan financing backing KKR’s buyout of Unilever’s spreads business, Flora Food Group.

“The track record of sponsors buying large deals out of large conglomerates has been extremely strong. There are a lot of levers they can pull — the ability to run businesses more efficiently or more commercially and make better use of the assets they have. It feels like the sort of deal PE should be good at and plays into strengths,” a second syndicate head said.

CHEMICAL REACTION

The financing backing the Akzo deal equates to around 6.4 times the chemicals unit’s approximately €1bn Ebitda and is set to comprise €6.5bn-equivalent of funded debt and around €700m-€800m of undrawn facilities.

The funded debt is expected to include around €5bn-equivalent of senior leveraged loans, mostly denominated in US dollars to match cashflows, but is still likely to include up to €1.5bn-€2bn of euro-denominated loans.

That suggests the euro piece will become the second largest single-tranche euro-denominated term loan B since the financial crisis, behind Flora’s €2bn TLB.

“While it is very large, it is not so large that it will redefine the European market in terms of capacity. While it is a European-led deal, it is calling on both markets and shouldn’t stretch either. It falls squarely into the realms of deals investors want to look at as it is big and liquid, but not so big there is danger of overhang,” the second syndicate head said.

The deal is expected to launch for syndication to investors before the summer and is likely to be in the market at much the same time as the US$8bn-equivalent term loan B backing US private equity firm Blackstone Group’s acquisition of a majority stake in Thomson Reuters’ Financial and Risk unit, as the pipeline of jumbo cross-border financings builds.

Blackstone is buying a 55% stake in F&R, which includes LPC.

Banks are confident that there will be appetite when these deals launch for syndication, removing any significant fears of holding large underwrites on balance sheets for the next few months.

“The market took Flora, and it is not like a snake that has swallowed a pig and can’t eat for the next three months. There is appetite,” the second syndicate head said.

Editing by Christopher Managham

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