January 25, 2018 / 1:17 PM / a month ago

LPC-Froneri’s €1.8bn refi hits pricing low in Europe’s loan market

LONDON, Jan 25 (Reuters) - UK ice cream and frozen food business Froneri has flexed pricing lower on a €1.8bn-equivalent loan refinancing, bulldozing through perceived pricing limits for split-rated credits, banking sources said.

A €1.2bn term loan B flexed pricing to 262.5bp over Euribor, from initial guidance of 275bp-300bp over Euribor. Prior to the refinancing, the loan paid 300bp over Euribor.

A £215m term loan B flexed pricing down to 325bp over Libor, from initial guidance of 350bp-375bp over Libor.

Both term loan have seven-year maturities and are offered with a 0% floor at par, tighter than the 99.75-par OID guidance.

Ratings are split at Ba3/B+ from Moody’s and S&P and it is the tightest pricing seen for a benchmark credit that doesn’t have a Double B rating on both sides, sources said.

“It is the tightest non 4-B rated loan,” a senior loan banker said.

There was talk of reducing pricing even further to 250bp on the euros, but this was considered too tight for the market.

At the final pricing levels, some investors scaled back their support and reduced their ticket sizes but the deal still closed oversubscribed, the sources said.

“There was some pushback on pricing because of the split-rating. It is very aggressive, further than we thought they would go, but it is getting done,” an investor said.

PLEASANT SURPRISE

Citigroup, Credit Suisse, Deutsche Bank and Goldman Sachs arranged the deal, which allocated in Europe’s secondary loan market on Thursday.

Many bankers also expressed surprise at just how well Froneri’s refinancing went.

“It was an amazing deal really…probably a little surprised if anything at how well it went,” a head of leveraged finance said.

Pricing is seen as particularly tight when compared with a recent US$2bn dual-currency term loan B backing food packaging provider Crown Holdings’ acquisition of packaging company Signode Industrial Group Holdings. That pays 237.5bp over Euribor with a 0% floor on the euro tranche, for a borrower that is rated Ba2/BB and loans that are rated Baa2/BB+.

SIGNIFICANT SUPPORT

Froneri enjoys support from banks for its term loans, as well as institutional investors, thanks to its shareholder Nestle.

“Pricing in conjunction with the ratings makes it an achievement in itself but on top of that there is the large size to factor in, which makes it a real achievement. It is a good underlying business and there is the halo effect of Nestle,” a second head of leveraged finance said.

The latest loans refinance debt issued in 2016 to back the formation of the joint venture between Nestle and R&R Ice Cream.

Nestle announced the JV with R&R in April 2016 to combine the two company’s ice cream businesses in Europe, the Middle East, Argentina, Australia, Brazil, the Philippines and South Africa.

Froneri also included Nestle’s European frozen food business, excluding pizza and retail frozen food in Italy, and its chilled dairy business in the Philippines.

At the time, pricing was considered tight and much of the CLO bid was lost as the arbitrage didn’t work. Much of the loan was financed through banks and managed accounts, as well as some CLO liquidity.

”If something is considered a good credit there will be significant demand for it, irrespective of views in the market. Unless investors are in a vehicle where they physically can’t play, they will,” the second head of leveraged finance said.

The deal also refinanced a €142m-equivalent Australian dollar-denominated tranche that remained with existing holders rather than being syndicated. It paid 325bp, with a 1% floor.

A €220m six-year revolving credit facility was also refinanced and priced at 225bp, over Euribor with a 0% floor, the tighter end of 225bp-250bp guidance. Prior to the refinancing it paid 250bp over Euribor with a 0%.

Pricing in Europe’s leveraged and cross-over loan markets has been under real pressure since last year due to a supply and demand imbalance.

Europe’s leveraged loan market has around €10bn to digest in January but even with a barrage of new deals to invest in, the technicals at play are unlikely to change, given the flood of liquidity from new CLOs and managed accounts entering the market.

While there is some pricing differentiation being seen in the market, between stronger and weaker credits due to the number of deals out there, downward pricing pressure still remains overall, the sources said.

Additional reporting by Max Bower; Editing by Christopher Mangham

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