June 12, 2019 / 11:10 AM / 2 months ago

Banks struggle to close Evonik's Madrid unit buyout loan

LONDON, June 12 (LPC) - A €1.785bn leveraged loan backing private equity firm Advent’s acquisition of German chemicals group Evonik’s methacrylates plastics unit, Madrid is yet to fully clear despite steep discounts offered on the deal last week, banking sources said.

Both the euro and dollar denominated term loans failed to generate enough support at 500bp over Libor, at 95-96 OID, by the commitment deadline, having been deeply discounted on June 5.

Soft-call protection of 101 was also extended to 12 months from six months, alongside a number of other document changes.

Investors had been asked to recommit to the revised loan by June 10 in the US and June 11 in the UK, however the lead bankers are still working to get the deal closed, the sources said.

At those discounted levels the banks were set to sacrifice most, if not all, of their 1.75% fee offered on the deal, which on a collective basis equates to around €25m of fees.

The loan could be discounted further in a bid to get the deal wrapped up, or could see its structure changed altogether, implying losses for the banks, the sources said.

Some fund managers are pushing to reduce senior debt and have a second-lien loan included.

“Another flex is on the way … as it apparently didn’t clear,” an investor said.

Advent declined to comment.

The high-profile buyout was hotly-anticipated by cash-rich leveraged loan investors eager to put money to work in meaningful size, but has met some resistance as many see Madrid as a commodities-exposed, cyclical business.

“There is a declining Ebitda trend with a particular product it is related to. 98% of leveraged buyouts have a growth story but Evonik has a turnaround story,” a senior banker said.

A second banker added: “It is a strong business, with expanding market share that has grown pretty steadily. They make a product used in high end brake lights and a couple of plants shut down last year so there was a shortage and they made a lot of money due to demand. This year there are no unplanned outages so the price has come down and they are due to make less money.”

Barclays is lead left on the dollar tranche, while Deutsche Bank and Goldman Sachs are bookrunners. Bank of America Merrill Lynch, Bank of China, Helaba, HSBC, RBC and NatWest Markets are mandated lead arrangers.

Evonik agreed to sell its clear acrylic sheet unit to Advent International for €3bn in March. (Editing by Christopher Mangham)

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