LONDON, Dec 16 (LPC) - Around €14bn of leveraged loans are set to hit Europe’s loan market in the first quarter of 2020, promising a solid start to the year as the pipeline of new issuance builds.
The pipeline involves deals of all sizes, from a €3bn-equivalent financing backing a buyout of UK defence and aerospace group Cobham to €690m of leveraged loans backing Platinum Equity’s acquisition of European biscuits manufacturer Biscuit International.
“Holy moly, €14bn is more than I thought,” a senior banker said. “It won’t all come at the same time and people have lots of money and want new supply and choice so it feels like there will be a healthy and active market. We should all rejoice.”
A loan backing technology-focused private equity firm Thoma Bravo’s US$3.82bn acquisition of UK cyber security company Sophos could be the first out of the blocks in the new year. The financing totals US$2.075bn and, although a US$520m second-lien loan has been preplaced, a US$1.43bn Term Loan B still needs to be syndicated. It is expected a portion of that TLB will be denominated in euros.
While much of the pipeline is awaiting syndication, some is comprised of potential deals in the final stages of auction processes such as a sale of German classifieds group Scout24’s autos unit AutoScout24, which will require up to €750m of debt financing to back a buyout.
In keeping with 2019, there will be huge differentiation between credits and there is unlikely to be a one-size-fits-all approach when it comes to leverage levels and pricing.
Highly leveraged and non-cyclical deals include £1.4bn of debt to back an acquisition of UK forensic sciences group LGC by a private equity consortium led by European firms Cinven and Astorg, which equates to around eight times LGC’s approximate £165m-£170m Ebitda. That financing will consist of first-lien loans and subordinated debt either in the form of second-lien loans or mezzanine-like cash-pay and payment-in-kind.
Others are lower leveraged and cyclical deals including a €1.5bn-equivalent debt financing backing a sale of BASF’s construction chemicals business to Lone Star, which comes in at around 4.25-4.5 times the unit’s Ebitda.
“There is certainly choice to be had and something for everyone,” a capital markets head said.
Other deals in the pipeline include a €2.5bn debt financing backing French entertainment production and distribution company Banijay Group’s acquisition of Endemol Shine; £2.4bn of loans backing TDR Capital’s British pubs group Stonegate Pub’s buyout of the UK’s largest pub owner EI Group; around €800m of debt for PAI Partners’ buyout of insulation foam maker Armacell; £305m of loans backing CapVest Partners’ acquisition of Young’s Seafood; and a debt financing for Dutch equipment rental firm Boels’ acquisition of Finland’s Cramo.
The €14bn pipeline figure has not taken into account a second potential syndication of the remaining portion of a €1.8bn buyout financing for German chemicals group Evonik’s methacrylates plastics unit Madrid that banks are stuck with having backed Advent International’s buyout.
It also doesn’t include possible mega-trades such as a €7bn debt deal to back a potential sale of German Thyssenkrupp’s elevator unit or a ground-breaking US$50bn debt financing for a possible sale of Walgreens Boots Alliance.
The first quarter is certainly promising to be more fruitful that the first three months of 2019, which saw volumes plummet following a difficult fourth quarter 2018 in Europe’s leveraged loan market.
Bankers are hoping the European CLO market will pick up again after a slower end to 2019, following saturation issues with Triple A investors and year-end fatigue.
“We should move gently into 2020. It is a far better start to the year than 2019 knowing there is deal flow to kick off with, but there is still plenty of capacity. Having said that, we will need the CLO market to restart again,” a second senior banker said. (Editing by Christopher Mangham)