By Claire Ruckin
LONDON (LPC) - A £1.3bn leveraged loan financing backing the acquisition of UK forensic sciences group LGC by a private equity consortium led by European firms Cinven and Astorg has launched with a large group of arranging banks for a deal of this size, banking sources said.
The term loan B totals £1.042bn-equivalent, which will be denominated in euros and will include a minimum US$330m tranche. There is also a £265m revolving credit facility.
BNP Paribas, HSBC, KKR and Morgan Stanley are global coordinators and joint active bookrunners, while SMBC is a joint bookrunner. Barclays, Credit Agricole, Mizuho, MUFG, Natixis, Natwest and Nomura are mandated lead arrangers.
“There are a whole bunch of banks there. The sponsors have done them a favour but there will be tiny economics,” a syndicate head said.
It is an unusually large number of banks on a deal of this size, even for an event-driven financing.
While historically swathes of banks would be present on a financing, for the past decade at least, a deal like this would typically see around half of the banks present.
A SFr5.4bn-equivalent (US$5.5bn) financing backing the purchase of Nestle’s Skin Health unit by a consortium led by EQT Partners and Abu Dhabi Investment Authority (ADIA) in 2019 had 10 banks.
ADIA is also part of the consortium buying LGC.
“Three tiers, wow. You would have to dig out the records now for the last time we saw this. The sponsors want to bring along a lot of friends,” a senior banker said.
A second senior banker added: “It is old school but I guess the different sponsors all need to keep their guys happy.”
LGC is a well-known credit in Europe's leveraged loan market and has been supported by commercial banks previously. With a revolver of £265m, it makes sense to keep a large number of banks in the deal, sources said.
"Four banks are doing all the work and then there is a long list of 'hangers on' underneath. The group is bigger than people would have liked but the business is incredibly well followed," a third banker said.
"Some of the banks have been there all the way through and there is a lot of good will from the commercial banking community, so there is a borrower desire to extend that credit through the RCF, as it makes sense to absorb that liquidity."
It is one of the first deals out of the blocks in 2020 and joins two other buyout financings in the market, cyber security company Sophos and media intelligence company Cision, although both are mainly dollar deals.
Pricing on LGC's seven-year covenant-lite loan will emerge at a bank meeting on January 10. It will be offered with a 0% floor and 101 soft-call for six months. Lenders have been asked to commit to the loan by January 23.
The loan is expected to prove popular with investors, as it is seen as a strong company that is already well known in Europe’s leveraged loan market.
“It will hopefully fly, everyone seems to like the name,” the second banker said.
Leverage is also expected to emerge at the bank meeting. Some banks were unable to commit to the loan, including staple bank JP Morgan, because of the high leverage around the deal, which was quoted by sources at around 8.0-9.0 times.
However, senior leverage is expected to be lower than that level, due to the presence of a preplaced PIK in the structure, which is basically treated as equity by lenders, rather than subordinated debt, sources said.
It is acknowledged that the company can justifiably take such high leverage, given it is highly cash generative, delivers quickly, is backed with a large equity cheque and is in a strong sector, several bankers said.
New York-based private equity firm KKR bought LGC from Bridgepoint in 2015 for about £650m and helped the company grow through a string of acquisitions.
While Cinven has a focus on the pharmaceuticals and life sciences industry, Astorg has interests across software, healthcare, business-to-business, and technology-based industrial companies.
LGC last tapped the loan market in July 2019 when it raised an incremental €210m-equivalent leveraged loan to fund upcoming acquisitions. KKR was sole arranger of the loans, with Wilmington Trust acting as agent.
After that, LGC’s complete capital structure comprised a US$420m TLB paying 350bp over Libor; a €490m TLB paying 325bp over Euribor; a €115m TLB paying 400bp over Euribor; a €145m second-lien paying 650bp over Euribor; and a US$105m second-lien paying 675bp over Libor. There was also a £50m revolving credit facility, according to LPC data.
LGC previously had sterling loans but they were removed from the capital structure when LGC sold a business in the UK that generated most of its sterling cash flow.
(Editing by Christopher Mangham)