Some of the recent dual continent deals may be pushing the envelope a bit beyond the comfort level of European investors, who see the deals as structured more for the hot U.S. market. Deals for Invensys and Brenntag are getting cool receptions from European investors who question how far arrangers will push the structure of upcoming deals and point to other options -- including IMO Car Wash Group, Clondalkin Group andCoral Eurobet -- on the leveraged loan deal calendar in Europe. "We have a choice and don't have to buy the loans that are structured for the hot market in the U.S.," noted one European investor.
The Invensys bank meeting has not yet taken place--it's scheduled for Wednesday in New York--but European investors said they are already wary of the credit because the traditional amount of due diligence has not yet been provided to potential bank loan investors. Accountant and market reports as well as projections are considered the market standard in Europe, but the deal is being launched with little information being made available, investors explained.
Deutsche Bank has completely underwritten the deal, which includes a £1.45 billion senior secured piece, a £150 second-lien tranche, £650 million of high-yield notes, and about £450 million of equity. "Deutsche Bank will have to do a lot more than that to get it done in the bank loan market," said one buysider. The package will be syndicated globally with financing denominated in dollars, euros and sterling. Calls to Deutsche Bank officials were not returned by press time.
Meanwhile, Brenntag's new "B" loan was three times oversubscribed in the United States but investors in Europe are not jumping into the credit in the same fashion. In Europe, there is a focus on credit quality and how the deal is structured, said one European buysider. While many investors in Europe like the business, they find the structure unappealing, he added. The structural elements giving investors angst include loose covenants, a low 25% equity contribution and high leverage, they said.
But one loan source emphasized that the Brenntag deal was a financing package for a European issuer that was structured in such a way to take advantage of what the U.S. market had to offer as well. Goldman Sachs and Citibank lead the financing, but officials at Goldman and Citi either could not be reached or declined comment. A spokesman for Bain Capital Partners, which is the leveraged buyout sponsor, did not return calls.
The reception of these deals gets down to the heart of the difference between the U.S. loan market and its European counterpart, players note. First, the European loan market is still largely a take and hold market, so if investors do not like the financial structure of the deal, they will likely shy away from investing in the credit. Second, the European market is said to be more conservative in terms of credit quality and leverage whereas in the U.S. loan market supply and demand factors tend to prevail.