The big thaw



The initial sell-down of around £3bn of hung senior and second-lien Alliance Boots debt is in effect complete, though the process has yet to close formally. Bankers said that not only was there sufficient liquidity to move the portion of debt sold, but further disposals could have followed if the full underwriting group had been minded to sell.

The bulk of debt sold is half of the original £5bn term loan B at 91% of face value. In addition, a substantial portion of the £1bn second-lien tranche was also sold, with observers suggesting GS Mezzanine Partners was the sole buyer at 85.

Deutsche Bank, JPMorgan, Citi, Banc of America, Merrill Lynch and RBS are each selling some or all of their exposure. Barclays and UniCredit opted to hold their portions of the loan rather than sell at a discount. People familiar with the matter say each of those who did opt to sell decided how much to sell and whether or not to provide leverage to buyers.

The minimum ticket for the senior piece is understood to have been around £50m and is likely to have been larger again for leveraged investors. The original £9.02bn package supported KKR and Stefano Pessina’s buyout of Alliance Boots.

The most active buyers of hung big ticket leveraged loans are credit opportunity funds set up by private equity firms such as Apollo, Blackstone and TPG as well as by hedge funds, specifically to target performing debt offered at deep discounts. The discount offered was certainly sufficient to secure commitments, overwhelmingly so when combined with the offer of substantial leverage.

Whether underwriters who do provide leverage to debt investors in order to shift assets off their balance sheets are really significantly cutting their exposure to leveraged credits is highly debatable and the process may yet well have unforeseen consequences.

“Private equity firms are massively exposed to systemic leverage at every level,” according to one market watcher, “and banks in turn have huge exposure to private equity firms and their portfolio companies compared with what they had to sub-prime mortgages.”

In Europe a broad mix of institutional investors bid for the euro piece of LyondellBasell’s B2 tranche. The deal was placed with cash investors only and priced in step with the US tranche at 91.