BC Partners Ltd., Cinven Ltd. and other private-equity companies raised 3.1 billion euros ($4.1 billion) of loans this month in Europe, the busiest August since 2007, amid signs the area’s economy has bottomed.
BC Partners got $2.6 billion of mostly covenant-light loans for its buyout of German academic publisher Springer Science & Business Media GmbH, while Cinven’s buyout of Internet domain and hosting company Host Europe Group Ltd. was backed by 255 million pounds ($395 million) of senior loans, according to data compiled by Bloomberg. Investor demand for corporate high-yield debt allowed the borrowers to raise more than double the amount recorded for August last year, and came after 7.2 billion euros of loans were signed in July this year, Bloomberg data show.
Growing confidence in Europe’s economy and concern for rising interest rates may help private-equity firms fund more buyouts after $4.36 billion of transactions were announced this month, up from $4.07 billion in August 2012, Bloomberg data show. Gross domestic product in the 17-nation euro area rose 0.3 percent in the April-June period, ending six straight quarters of contraction, the longest slump since the euro’s debut in 1999.
“With demand for floating-rate credit increasing as investors try to hedge the risk for rising interest rates, we see Europe maintaining leveraged loan deal momentum for the rest of the year if U.S. investors continue to believe the region’s economy has reached the bottom,” said Olivier Struben, London-based head of European Loans at ING U.S. Investment Management, which manages $187 billion.
Investors added about $47 billion this year into funds in the U.S. that buy leveraged loans, according to Charlotte, North Carolina-based Bank of America Corp. Prices of the senior-ranking debt have risen about 2 percent this year, according to the Standard & Poor’s European Leveraged Loan Index.
“For European companies to be able to wean off that dependence on U.S. investors for their high-yield debt financing, we need real sustainable economic recovery, and that may have to wait until toward the end of next year,” said Struben.
European companies owned by buyout firms agreed to pay an average interest margin of 446 basis points more than the euro interbank offered rate for loans signed in August, down from 475 basis points for the first seven months of the year, according to Bloomberg data. A basis point is 0.01 percentage point.
Buoyed by demand, the price of the 615 million-euro seven-year covenant-light term loan B of Springer Science has increased to about 100.25 cents on the euro, according to data compiled by Bloomberg. The loan was issued at 96.5 cents on the euro with an interest margin of 425 basis points higher than Euribor and a 1 percent floor for the benchmark rate.
Loans to be offered to a wider group of lenders next week include the 320 million euros of senior loans backing CVC Capital Partners Ltd.’s bid for Campbell Soup Co.’s European businesses. The debt, arranged by BNP Paribas Fortis, ING Groep NV and Rabobank International, has a 190 million-euro seven-year term loan B carrying an interest margin of 475 basis points more than Euribor, according to Bloomberg data.
Carlyle Group LP is raising 340 million pounds of loans for its buyout of U.K. packaging company Chesapeake Ltd. Lenders are invited to a bank meeting in London on Sept. 3 for the financing that includes 290 million pounds of term loan B in euros and pounds at an interest margin of 450 basis points and 500 basis points respectively, Bloomberg data show.
Credit Suisse AG, Jefferies Group LLC and Royal Bank of Scotland Group Plc also plan to market 305 million euros of leveraged loans next month that will fund CVC’s acquisition of British online payment company Skrill Group Plc, people with knowledge of the matter said on Aug. 19.