Reuters – PE Eyes U.S. Loan Market for CeramTec Buyout

Bankers are looking towards the U.S. debt market to raise 900 million euros ($1.18 billion) for a buyout of industrial ceramics firm CeramTec, spurning Europe where risky debt is in shorter supply, bankers said on Thursday. U.S. specialty chemicals company Rockwood Holdings Inc has put Germany-based CeramTec up for sale in an auction process run by Lazard. CeramTec has a price tag of around 1.4 billion euros, bankers said. The U.S. market for riskier debt is more liquid than Europe’s, making it easier to raise large amounts at competitive rates. A U.S. financing can be “covenant-lite”, a structure that offers little or no protection for lenders via financial tests.

(Reuters) – Bankers are looking towards the U.S. debt market to raise 900 million euros ($1.18 billion) for a buyout of industrial ceramics firm CeramTec, spurning Europe where risky debt is in shorter supply, bankers said on Thursday.

U.S. specialty chemicals company Rockwood Holdings Inc has put Germany-based CeramTec up for sale in an auction process run by Lazard. CeramTec has a price tag of around 1.4 billion euros, bankers said.

The U.S. market for riskier debt is more liquid than Europe’s, making it easier to raise large amounts at competitive rates. A U.S. financing can be “covenant-lite”, a structure that offers little or no protection for lenders via financial tests.

CeramTec would be the latest leveraged loan financing to go to the U.S. market following animal identification company Allflex, German insulation firm Armacell and others.

The shift of leveraged financing deals from Europe to the U.S. is causing growing concern among European bankers who are losing out on a growing amount of work.

“It is a real concern for European bankers that companies are opting to go to the U.S. to finance deals. But the allure of the U.S. is that you can get higher leverage and covenant-lite debt packages,” one of the bankers said.

COVENANT CONCERNS

Three private-equity bidders – Bain Capital, BC Partners and Cinven – have been asked to submit final-round offers on June 10 after they made it through a second round of bidding in April, bankers said.

Permira, TPG Capital, France’s Wendel and Chicago-based GTCR had shown interest in CeramTec but are no longer involved in the process, they added.

Bain, BC Partners and Cinven declined to comment. Rockwood was not immediately available to comment.

Bankers are working on debt packages of around 900 million euros, or 6.5 to 6.75 times CeramTec’s annual EBITDA of around 135 million euros. The debt could be raised in the U.S. as a covenant-lite loan rather than Europe, according to the bankers.

Covenant-lite financing has been a staple feature of the U.S. market since 2005, peaking at $47.9 billion at the height of a buyout boom during the second quarter of 2007 and still raising $42.5 billion in the fourth quarter of 2012.

Despite large volumes in the United States, covenant-lite deals have mostly been shunned in Europe’s more conservative loan market.

CeramTec, founded in 1903, makes ceramics used in thousands of products from filters for water treatment to electronic components in factory robots. It had sales of $548 million in the 12 months to September 2012.