CVC Funds Deal With Biggest High-Risk Loan in Three Years

Spanish health-care operator IDCsalud is financing its acquisition of Quiron Hospitales SL with the largest junior-ranking loan in euros in more than three years, a sign of investors’ renewed appetite for the debt.

The company, backed by private-equity firm CVC Capital Partners Ltd., issued 350 million euros ($467 million) of second-lien debt as part of a 2.15 billion-euro loan, according to data compiled by Bloomberg. That’s the biggest such deal since Denmark’s ISS A/S raised 600 million euros of similar debt in June 2011, the data show.

Junior loans are becoming popular for the first time since the financial crisis as investors increase their tolerance for risk in a reach for yield. Speculative-grade borrowers marketed 854 million euros of second-lien loans in July, the busiest month since October 2007, according to Bloomberg data.

“The resurgence of second-lien tranches, coupled with the increasingly aggressive leverage levels and lighter covenant protection, show how strong investor demand is,” said Paolo Malaguti, founder of Aston-Corp Analytics, a London-based provider of financial data and analysis to European leveraged-loan and high-yield investors. They now “feature in many of the latest leveraged-loan transactions.”

IDCsalud priced the deal at 98.5 cents on the euro, discounted from 100 cents, increasing the yield for investors and reducing proceeds for the company. The eight-year second-lien portion pays 725 basis points, or 7.25 percentage point, more than the three-month Euro interbank offered rate.

While second-liens pay higher interest than senior first-lien securities, investors are accepting a weaker negotiating position in the event of a restructuring or bankruptcy.

Banks have arranged 19 junior-loan transactions totaling 1.9 billion euros this year, the most for any comparable period since 2007, Bloomberg data show.