Carlyle and Seven Sweeten A$1.75 Billion Coates Loan Agreements

Australia’s Coates Hire Ltd., controlled by The Carlyle Group LP and Seven Group Holdings Ltd., has agreed more favorable terms on a A$1.75 billion ($1.65 billion) loan with existing lenders rather than borrow new debt in the U.S. high-yield market to repay them.

The equipment hire company is completing a so-called “amend and extend” deal that stretches the loan’s maturity to 2017 and allows its owners to pay themselves dividends in the future, Matthew Hunter, Sydney-based managing director of Carlyle Group said in a telephone interview. The deal has lower upfront fees than a U.S. raising, and won’t incur currency-hedging costs, he said.

Coates agreed the revised debt package as lenders in Australia increasingly offer easier terms to compete with the $2 trillion U.S. high-yield debt market. Private equity firms have this year arranged more than $5 billion in loans against Australian companies to help pay themselves dividends, according to data compiled by Bloomberg.

“This deal was very strongly supported by the bank syndicate and I think that reflects the quality of the business,” Hunter said. “The option we went with has a much more cost-efficient structure.”

Borrowers in the so-called Term Loan B market in the U.S. are able to raise debt with virtually no financial checks attached. Even so, the 128 year-old equipment-hire firm was able to agree flexible loan agreements locally with about 31 banks at a lower cost than in the U.S., said Hunter.

Dividend Payments

The new agreement allows the company to pay its owners ordinary dividends, provided that senior debt isn’t more than three times its earnings, Hunter said. Interest payments are priced according to debt levels and the loan margins remain at about 325 basis points more than benchmark rates, he said.

Carlyle and Seven, which each own about 45 percent of the company, completed a strategic review of Coates this year and decided to retain their ownership, according to Seven Group’s annual report. The company had revenue of A$1.2 billion and earnings before interest, tax, depreciation and amortization of A$533.7 million for the year to June 30.

Coates was acquired by a consortium that included the Carlyle Group and Seven-owned National Hire in 2008, according to its website. It also operates in the U.K. and Indonesia.

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