February 7, 2018 / 2:05 PM / 14 days ago

Flamingo buyout loan closes but lenders take hit

LONDON (Reuters) - Banks have taken a loss on a €310 million (£275 million) leveraged loan financing backing UK flower and vegetable supplier Flamingo’s merger with Afriflora after making changes to the deal in order to attract enough investor support, bankers said.

Credit Suisse, Investec and Jefferies led the financing that saw a €280m, seven-year term loan B close to pay 575bp over Euribor, with a 0% floor at 93 OID, sources said.

“The final flex will be through the banks’ fees. An OID of 93 is a deep and painful discount,” a syndicate head said.

The steep discount and high margins helped to attract new money to the deal, with some investors drawn to the large yields on offer.

It was the second flex offered on the loan, which was launched with guidance of 500bp over Euribor, with a 99 OID before being widened initially to 575bp over Euribor with a 96 OID as the deal struggled in syndication.

Investors are cherry-picking larger or better perceived credits in the market amid a flurry of new issuance in January.

This has been acerbated in light of recent wider macro volatility that has seen a brutal global sell-off in stocks.

“We ended playing it at 93. At that price point the economics are fundamentally a lot more attractive. The banks went to 96 on it and this week given the volatility elsewhere I think realised they needed to go lower,” an investor said.

While the initial price adjustment was just within the flex terms agreed between the banks and sponsor Sun European Partners, the final terms were not.

The banks had already lost some fees on the initial adjustments when they had to pay up to offer soft-call protection of 102 for 12 months, from initial guidance of 101 for six months.

Other significant document changes in the initial adjustment, such as the introduction of a leveraged covenant to take the borrower to covenant-loose from covenant-lite, were accepted by the sponsor without expense to the banks.

MORE GENEROUS

The flex terms agreed by Sun with the banks had been more generous on this financing than conventional deals in Europe’s leveraged loan market to take account of a number of issues including sector and the fact that flower grower Afriflora sources its products from its 500 hectares of farmland in Ethiopia.

“I just can’t understand why this deal came to our market. African risk isn’t exactly our expertise,” a second investor said.

The company has corporate and issue ratings of B2/B, with a recovery rating of 3.

Sun European Partners agreed to buy Afriflora, alongside founders the Barnhoorn family, from KKR late last year. Afriflora produces over 1.1bn roses a year.

Sun previously bought Finlays Fresh produce in 2015, subsequently rebranding it to Flamingo. It is the second largest supplier of flowers and vegetables in the UK, according to banking sources.

The debt was issued through Zara UK Midco Limited.

Editing by Christopher Mangham

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