LONDON (Reuters) – The staple financing backing Dutch utility Essent’s sale of its waste management unit pays interest margins ranging from 425-525 basis points over EURIBOR, a banking source close to the deal said on Wednesday.
The auction is one of a handful of live sale processes to have attracted private equity interest as sponsors struggle to achieve their targeted rates of return on debt-financed deals.
The source said second round bids on the deal are expected in early May.
The staple financing, which consists of 392.5 million euros ($506.6 million) of senior debt and 150 million euros of mezzanine debt, is being provided by eleven banks.
ING, Credit Suisse, Friesland Bank, Rabobank, Fortis Nederland, Bank of Ireland, Natixis, Societe Generale, Calyon, Helaba and WestLB are backing the deal.
The wide geographic spread of banks shows that banks are still willing to finance cross-border buyouts for strong credits in the right sector, several banking sources said.
However each bank has imposed conditions as a prerequisite of their support in addition to typical staple financing conditions linked to the buyer of the business, banking sources said.
The senior debt consists of four tranches – a 172.5 million euro, six-year term loan; a 100 million euro, seven-year term loan; a 100 million euro, eight-year term loan and a 20 million euro, six-year revolving credit.
The tranches pay margins of 425 basis points (bps), 475 bps, 525 bps and 425 bps respectively.
A 150 million euro, nine-year junior facility is being placed with mezzanine lenders.
A second banking source said leverage on the deal is expected to come out at around 3.5 to 4 times.
Earlier this year, banking sources said unlisted Essent, which is selling its much bigger power production and delivery businesses to Germany’s RWE (RWEG.DE), hoped to fetch more than 1 billion euros for its Essent Milieu waste unit.
The size of the staple financing, however, would require private equity firms to fund almost half the purchase with equity to achieve such a price.
Bidders still in the reckoning include Wheelabrator Group alongside Deutsche Bank’s RREEF Alternative Investments; French private equity firm PAI, Convanta and the Orange consortium comprising NIBC Bank and Fortis Bank Nederland.
ING and Credit Suisse are advising Essent on the sale.
(Reporting by Alasdair Reilly; Editing by David Cowell)