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Rlpc european leveraged loans struggle to compete


The latest European leveraged loans are struggling to attract attention, as potential investors are being lured towards the US loan market and the European high-yield bond market, which both offer better yields and more attractive relative value. The US leveraged loan market is looking more attractive to global credit investors after a rise in pricing designed to help the placement of a glut of new M&A deals and offset outflows from loan funds. Regulation is also creating a more lender-friendly market, with high-quality deals at good yields. Deals in Europe are suffering with global credit investors migrating to the US, as a summer pricing squeeze on better-quality European assets remains in effect."Global funds are absolutely steering away from euros at the moment to dollars, as you can definitely get better value in the US," an investor said. Earlier in September, euro tranches on strong cross-border deals, including those for Dutch information provider BvD and French rail equipment maker Delachaux, priced tighter than dollar tranches - in a reversal from last year, when euro tranches carried a premium of at least 25bp."European pricing, structure and terms have gone crazy," a second investor said.

But that trend now seems to be correcting. Even European CLOs and credit funds, which are unable to invest in the US, are pushing back in Europe. Some funds are satisfied after increased dealflow in July and are waiting for better deals with more attractive terms, while others are also targeting better yields in the primary and secondary bond market."Many managers now do loans and bonds and big managed accounts can choose where to invest. Managers can buy senior secured notes at 9 percent with good discounts in the same sector as loans offering 4.5 percent," a leveraged banker said. Terms have been sweetened on several recent European buyout loans as banks try to avoid being left long, with higher interest margins, wider OIDs and other structural changes the order of the day.

"There has been a real flight to quality in Europe. People are not interested in anything with hair on it, or else they need to be paid a significant premium," the first investor said. IMPROVED TERMSThe 480 million euro--equivalent ($605.47 million)loan backing Advent's acquisition of Belgian aluminium systems manufacturer Corialis has already been adjusted twice and is still in the market. The first-lien interest margin was increased by up to 50bp and is now being marketed with guidance at 500bp-525bp, up from 475bp. The discount was also widened, while currencies were adjusted and a covenant was added. Pricing was flexed higher on a 615 million euro loan backing KKR's offer to take full control of German listed cutlery and coffee-machine maker WMF. Margins were increased by 25bp to 450bp and the discount was increased to 98.5 from 99-99.5.

British outdoor clothing chain Fat Face also increased margins on its refinancing from 500bp-525bp over Libor to 550bp and widened the OID to 95 from 99.5, while Greek pharmaceutical company Famar added a Term Loan A and cut the size of a Term Loan B and dividend payment on its refinancing. Meanwhile, a 305 million euro dividend recapitalisation for Germany-headquartered automotive engineering company Amtek Global Technologies is on hold after a slow syndication. After a good year for European leveraged loans so far, European investors and bankers are unwilling to take too much risk in a less predictable fourth quarter. The market has US$20 billion of pipeline to place, which is expected to thin out towards the end of the year. To compete with a more lender-friendly US market, European banks and borrowers might have to further improve the terms on offer going forward."Regulators are coming down hard in the US, which will have an impact there, and hopefully that will have a knock-on effect in Europe. We have rejected so many deals recently: at the moment we are buying three in 10 deals," the second investor said.(1 US dollar = 0.7928 euro)

Rlpc loan market to profit from sfr acquisition deals


The tightly-contested battle for French telecoms operator SFR between Numericable and Bouygues is a win-win situation for lenders as both bids are backed by loans of more than 10 billion euros ($13.86 billion). The loans are however very different. Numericable's financing is a leveraged loan, which is targeted at institutional fund investors and pays higher interest margins as it is viewed as a more risky credit. Bouygues' loan is a corporate-style investment-grade loan that pays lower interest margins due to the reduced risk associated with a higher credit rating. Market conditions are equally strong for both sets of financings. Europe's liquid loan markets have been waiting for new event-driven M&A deals after low levels of activity in 2013."No matter what the deal looks like, it will be a very big financing and will be one of the most interesting situations in Europe's loan markets this year for sure," a leveraged finance banker said. Europe's banks are eager to lend again and underwrite new deals after strengthening their capital postions and cash-rich investors want to put funds to work."There is huge appetite for large M&A financing from banks and investors," a leveraged finance investor said.

Numericable's bid last week valued SFR at 14.75 billion euros, which will leave owner Vivendi with a roughly 32 percent stake in the new group. Bouygues, currently France's third-biggest telecoms operator, offered Vivendi 10.5 billion euros in cash and 46 percent of the new company after a planned spin-off. The bid values SFR at 14.5 billion euros before synergies and 19 billion euros after synergies. As Bouygues' acquisition will merge SFR into Bouygues and then carve out the combined telecoms company into a listed company, a capital increase is planned at the time of the Initial Public Offering (IPO) to increase investment capacity.

COMPETING LOANS Numericable's bid for SFR is backed with a leveraged loan of 10-12 billion euros which is provided by Bank of America Merrill Lynch, Barclays, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley. The deal is expected to consist of loans and bonds in euros and dollars to tap institutional liquidity in Europe and the US.

Up to 4 billion euros of debt could be raised from European investors and banks to fund the acquisition, with the remainder raised in the US, one investor said."They (banks) need to maximise capacity for a deal like this so it needs to be well-structured and priced to keep investors interested," a leveraged finance banker said. Bouygues' bid is backed by a 10.5 billion euro corporate loan. The deal was underwritten on a sole basis by HSBC and signed on the day of the bid deadline on March 5 as Bouygues wanted to keep a low profile before launching its bid, a senior banker said. The investment-grade loan will finance the cash part of the acquisition and provide working capital for Bouygues' operating needs. HSBC is also acting as M&A adviser to Bouygues along with Rothschild. The loan market is welcoming both bids and looking forward to a significant new deal irrespective of the outcome of the bidding battle. Even if Vivendi does not sell SFR, the French media and telecoms giant will go ahead with its earlier plan to spin off SFR as a separate unit this summer and is lining up around 7 billion euros of loans to support a demerger.($1 = 0.7214 euros)