A recovery in the leveraged loan market failed to help new borrowers in Europe where contagion from the euro crisis forced buyout firms to restructure at least two deals.
BC Partners Ltd. offered lenders higher interest margins and scaled back a planned high-yield bond for the buyout of Swedish cable company Com Hem AB, according to data compiled by Bloomberg. Blackstone Group LP may change the structure of a 500 million-euro ($690 million) loan to fund the buyout of German outdoor clothing retailer Jack Wolfskin.
European finance ministers ruled out efforts to prop up the faltering economy and gave no indication of providing aid for lenders to go along with last week’s liquidity lifeline from the European Central Bank. Clashing with U.S. Treasury Secretary Timothy Geithner, finance chiefs from the euro region said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation.
“People are frightened, the IPO market is shut, high-yield is shut, and secondary market gives better value, so investors can be picky on new deals,” said John Seal, a London-based partner at New Amsterdam Capital Management LLP, which oversees about 1.6 billion euros. “We are looking at six deals now and we think we may turn down three or four of them. It’s hard to see how long this will last but given the macro uncertainty, I don’t expect people to become brave again soon.”
Secondary Market Recovery
Average bid prices for European leveraged loans on the secondary market rose four basis points last week to 88.43 percent of face value on Sept. 15, up from a 2011 low of 88.35 the week ending Sept. 2, according to prices provided by Markit Group Ltd. Deutsch Group, a maker of electrical connectors owned by Wendel SA, was the top gainer, rising 6.6 percent to 93.7.
Stockholm-based Com Hem added 865 million kronor ($128.5 million) of junior pay-in-kind notes to its 7.1 billion kronor financing, reducing the amount of debt serviced with cash to 5.9 times its earnings before interest, tax, depreciation and amortization from 6.4 times under the structure proposed in July, Bloomberg data show. PIK notes allow borrowers to pay interest with more debt instead of cash and typically pay margins double those of senior-ranking loans.
Com Hem also increased the interest margin on a 6.5-year term loan B by 25 basis points to 500 basis points, according to Bloomberg data. A basis point is 0.01 percentage point.
German outdoor clothing retailer Jack Wolfskin is discussing with lenders changes to take into account an improvement in cash flow, after it offered sweetened terms to the proposed financing in July, a person with direct knowledge of the deal said Sept. 14.
Leveraged buyout loans coming to the market in the past two weeks represent less than 4.3 times the borrowers’ Ebitda, the lowest since at least 2001 and below the 2011 average of 4.8 times, according to Fitch Ratings.
“Leverage ratios of new deals throughout 2011 have come down to 2004 levels, but in 2004 we were in a world that was growing, not like now when the economic outlook is anemic,” said David Milward, head of loans at Henderson Global Investors in London.
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