February 28, 2020 / 1:25 PM / a month ago

UPDATE 1-Banks line up jumbo financing for Thyssenkrupp unit

(Adds further financing details)

By Claire Ruckin

LONDON, Feb 28 (LPC) - A group of banks are providing up to €11bn of loans and bonds to back Advent, Cinven and Germany’s RAG foundation’s €17.2bn acquisition of Thyssenkrupp’s elevators division, banking sources said.

The bidding group prevailed against a rival consortium comprising Blackstone Group, Carlyle Group and the Canada Pension Plan Investment Board, it was announced on Friday.

The bank group is still being decided and Goldman Sachs is expected to lead the debt financing alongside a number of other banks expected to include Deutsche Bank, Barclays, Credit Suisse, RBC and UBS in what is Europe’s biggest buyout since 2007 and could be the world’s largest buyout this year.

The bank group is expected to increase further with a number of other banks likely to join the financing, which comprises between €7.0bn-€8.5bn of funded debt and a massive €2.5bn of unfunded facilities.

The funded debt will comprise senior loans and bonds, subordinated bonds and could also comprise a PIK-type instrument.

The financing will be denominated in euros and dollars and the sell-down is likely to be a second quarter event.

There are some fears that the fast-spreading coronavirus could disrupt the financing given the company’s exposure to Asia.

However, it is a highly anticipated, large event-driven financing, which is exactly what cash-rich investors have been desperate to invest in following lack of meaningful new money deals in 2020.

“Everyone’s been waiting for this. We will have to see how things play out on the wider stage but it is expected this unit will be popular,” an investor said.

The unfunded facilities comprise €1.2bn of guarantee facilities, a €500m revolving credit facility and €800m of surety bonds.

M&A banks held meetings with a broad array of banks and insurance companies in January to discuss raising the unfunded facilities.

It is expected that the existing investors in the surety bonds will roll into the new ones, and while formal commitments haven’t been received to cover all the guarantee and revolving credit facilities, there have been strong indications of support.

“The unfunded facilities are not fully accounted for and while it is an issue it is not an insurmountable issue because the market has been sounded out and banks are pleased with the indications of appetite,” a senior banker said.

The expectation is that the initial underwriting group will be joined at a later stage by a number of other banks agreeing to take the unfunded facilities either on a standalone basis or on a non-pro rata basis.

On Double B rated Thyssenkrupp’s outstanding €2bn revolver, BBVA, MUFG, BayernLB, BNP Paribas, Citibank, Commerzbank, Credit Agricole, Deutsche Bank, SEB and UniCredit are mandated lead arrangers. There are another seven lead arrangers and 10 arrangers.

HIGH LEVERAGE

At €8.5bn of funded debt, the deal is expected to be highly leveraged, which could prove tricky for some banks to participate.

Deutsche Bank, Goldman Sachs and JP Morgan were M&A advisers and JP Morgan is trying to get a spot on the financing but may come up against regulatory issues, which prevents it from getting involved.

If this is the case, it would be the second time JP Morgan has had to turn a deal down this year after not playing in a £1.3bn leveraged loan financing backing the acquisition of UK forensic sciences group LGC by a private equity consortium led by European firms Cinven and Astorg, despite being a staple bank.

JP Morgan declined to comment.

The price of Thyssenkrupp’s elevator unit beats the most optimistic estimates and roughly matches a bid that had been submitted earlier in the process by Finnish rival Kone, which dropped out of the race earlier this month over expected antitrust risks.

The decision followed a meeting of Thyssenkrupp’s management and supervisory boards, ending the closely watched saga.

Thyssenkrupp said it would reinvest about €1.25bn to take a stake in the unit, which, based on the purchase price, would result in a 7.3% share that would be used to partially fund its pension liabilities in a trust.

Thyssenkrupp Elevator is the world’s fourth-largest lift manufacturer behind United Technologies Corp’s Otis, Switzerland’s Schindler and Kone. (Editing by Christopher Mangham)

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