Dec 18 (Reuters) — US banks are pulling back from underwriting European buyout loans, in the first sign turmoil in the US leveraged loan market is spilling over the Atlantic, loan bankers said on Friday.
There is a marked absence of US banks on underwriting lists in a pipeline of European leveraged loans that are being primed for syndication in January, they added.
“US banks have disappeared,” one European banker said. “They’re all fighting fires in the US.”
US banks are becoming less willing to underwrite dollar loans for European companies due to continued dislocation in the US market, which is hitting liquidity.
“US banks are withdrawing from US dollar underwrites where it’s a European borrower which means it’s a tough trade for the US market,” a London-based banker said.
European banks are prepared to test the US market with dollar deals for European companies, if flex provisions are included to redenominate the deal into euros if it is not successful.
They will however only syndicate these dollar loans on a ‘best efforts’ basis which means that borrowers have to settle for the amount raised and banks are not obliged to meet any shortfall.
Activity in the US market has fallen dramatically since a US$5.6bn debt financing backing Carlyle’s buyout of software maker Veritas was pulled in November.
The deal was regarded as a weaker credit and struggled to price as the US market continues to divide along credit lines and investors lose their risk appetite.
The underwriting banks were forced to hold Veritas on their balance sheets over year end for syndication in early 2016 and other large deals were also put on hold for syndication in the New Year.
MISSING IN ACTION?
Although the European leveraged loan market initially saw less of an impact from US events with stronger secondary prices, recent developments are now starting to be felt in Europe.
US banks burned in the US have vanished from the January pipeline and European bankers expressed surprise that three deals in particular had not attracted US bank interest so far.
Spanish theme park operator Parques Reunidos is close to being purchased by preferred bidder Apax. Although the company has a dollar business and dollar revenues, the deal is likely to be led by Credit Suisse, sources said.
“It is surprising because it is a cross-border term loan B covenant-lite deal,” said another European banker. “I don’t know what the background is for the US banks not showing up.”
A US fund is believed to have already agreed to take the dollar tranche of the 900m Parques Reunidos term loan B – which effectively de-risks the dollar element.
Another gap is the bank list on US private equity firm KKR’s buyout of UK forensics testing group LGC – which is becoming a club deal of European banks.
Bridgepoint’s buyout of Dutch-based testing firm Element Materials Technology is also now expected to syndicate in Europe with a cross-border element, showing the weakness of the US market for a company which has primarily dollar revenues.
However, one London-based banker at a US bank said his firm was not backing away from underwrites.
“You have to look at what the market is demanding on terms for certain deals and that’ll inform your behavior – but in terms of stepping away from underwriting per se, no, no, not here.”