Onex Corp. is trying to cut the rate on about $2.4 billion of loans that just last month financed its buyout of SIG Combibloc Group AG, saving as much as $24 million in annual interest.
Onex is seeking to trim the 5.25 percent rate Sig now pays on the euro and dollar borrowings to 4.25 percent, according to a person with knowledge of the financing, who asked not to be identified because the deal is private. Investors are asked to commit to the financing by April 30.
Companies have gained an upper hand in leveraged lending deals, reaping savings on interest as a regulatory crackdown leaves investors chasing a paucity of new loans. Toronto-based Onex is returning to the market so soon after its purchase shows how favorable market conditions suddenly appear to speculative-grade borrowers.
The private-equity firm said March 13 that it completed the purchase of Sig Combibloc, a carton-packaging company based in Neuhausen am Rheinfall, Switzerland, for 3.75 billion euros ($4.12 billion). The deal was partly financed with two long-term loans, including $1.225 billion piece and a 1.05 billion euro portion, according to data compiled by Bloomberg.
Standard & Poor’s estimated in January that the buyout would bring the company’s debt level to 6.9 times a measure of earnings, with leverage falling to about 6.3 times within two years of the deal’s completion.
U.S. regulators including the Federal Reserve and Office of the Comptroller of the Currency specified in leveraged lending guidelines issued in March 2013 that a debt level exceeding 6 times raises concern. Leveraged loan volume has plunged this year amid their heightened scrutiny, with demand for the debt outstripping new supply.
Sig also presented its offer to lenders as average loan prices in Europe soared to an eight-year high, pushing down borrowing costs. The average price climbed to 97.63 cents on the euro Tuesday, the highest level since July 2007, according to Standard & Poor’s European Leveraged Loan Index.
U.S. loan prices climbed to 96.75 cents on the dollar, the highest since Dec. 2, data from the S&P/LSTA U.S. Leveraged Loan 100 index show.