A €1.1 billion (US$1.2 billion) leveraged financing backing a buyout of European medical laboratory services operator Cerba is being shown to early-bird investors in a bid to gauge appetite for the deal, banking sources said on Tuesday.
JP Morgan, Natixis, Credit Suisse, Deutsche Bank and BNP Paribas are leading the debt financing, which is currently split between a leveraged loan and a high-yield bond.
Underwriting lenders are trying to work out how much liquidity is in each market for the deal before launching to general syndication at a bank meeting next week, the sources said.
The financing has been structured to comprise around €550 million of senior leveraged loans, guided at around 375 bp over Euribor; €250 million of senior secured bonds; and around €180 million of subordinated bonds, the sources said.
However, the structure is fluid and the likelihood is that the bonds could be scrapped altogether.
Lenders are launching jumbo leveraged deals to both bond and loan investors, with the intention of dropping the bond portion of a deal if they generate enough loan support, at the right price.
Germany-based building materials maker Xella raised a €1.45 billion covenant-lite term loan B earlier this month, which was increased twice during syndication from an initial target of €1.15 billion, after ditching plans to raise a high yield bond.
Competitive tension between the two markets has been used as a syndication strategy for years but the difference now is that an all-loan structure is the end target before a deal has even launched. Historically there wasn’t the same visibility on the final composition, the sources said.
Loans are generally more flexible as they don’t have call protection, so an owner can prepay them and reprice them.
“The banks are showing that the bond market is a threat but the bonds are likely to disappear. The bond market is gradually waking up to the fact they are the stalking horse to keep pricing tension,” an investor said.
Partners Group and Canada’s PSP Investments agreed to acquire Cerba from PAI Partners, the firms announced in January. The terms weren’t disclosed.
Cerba employs almost 4,300 people, including 350 biologists and generated revenues of approximately €630m in 2016.
By Claire Ruckin
(Editing by Christopher Mangham)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of PAI Partners