As a large, well performing company with an existing syndicate and in a strong sector and jurisdiction, BSN had long been expected to be a blowout. Some loan investors had expressed concern about BSN’s leverage when the deal was launched, saying syndication may not be so straightforward. But these fears have proven to be unfounded as the deal was heavily oversubscribed.
"It was a barnstorming success, but we always knew it would be," said one banker working on the deal. "The leverage is higher than on other deals but the credit is extremely strong. People know that so were not worried."
Within 10 minutes of announcing the changes, the largest 10 accounts in the deal had recommitted at the new terms, said one bookrunner. The loan is likely to be allocated on Monday.
On Thursday afternoon, bookrunners Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley tightened the original issue discount on the term loan ‘B’ to 99.5 from previous talk of 98 for the euro portion and 97-98 for the dollar portion. They also cut the Euribor floor on the euro piece to 1.25% from 1% and announced margins of 475bp for the US tranche — the tight end of guidance. The margin on the euro tranche remains unchanged at 500bp.
In addition, demand from banks was so strong that the company’s committed capex and acquisition facility was increased by €50m to €125m, replacing the uncommitted lines.
Finally, BSN was also able to carry out its wish of raising some money in Australian dollars to reflect the fact that 8% of its revenues are from Australia. No Aussie dollars had been underwritten, but lending banks had been asked how willing they were to lend in the currency when they were invited on to the deal. The equivalent of €60m of the term loan ‘B’ will be in Australian dollars, paying 575bp but without an interest-rate floor.
BSN’s senior loans now comprise a term loan ‘B’ of which €454.5m is in euros, €225m-equivalent is in US dollars and €60m-equivalent is in Aussie dollars. The euro term loan ‘B’ includes a €360m carve-out for institutional investors.
The increased €125m committed acquisition line pays 475bp, and there is also a €50m revolving credit facility, which offers 475bp.
Senior leverage on the deal is 4.25 times, but a €391.5m mezzanine piece lifts total leverage to 6.5 times. The mezzanine piece was pre-placed with a club of investors comprising KKR, Highbridge Principal Strategies, JP Morgan Mezzanine, MezzVest and Partners Group.
All round support
A banker working on the deal said the loans were supported strongly by the existing syndicate rolling into the new deal, new lenders coming on board, and a good reception from US investors.
One levfin banker said that borrower and lenders should be happy with the deal.
"First of all, having an interest-rate floor on the euro tranche sets a good precedent, as it unlocks the market to certain funds that cannot do completely floating rate instruments," said the banker. "Investors like floors and we’re keen to persuade sponsors to use them more frequently.
"In addition, the borrower has achieved the balance of currencies it wanted at a healthy price, has better than expected capacity for capex, and should see its deal trade well."
BSN’s margins and OID are tighter than other deals in the market, with the latest launch for Wood Mac offering 600bp on the term loan ‘B’. And deals for Alain Afflelou and Global Blue are expected to price at 93 and 95 respectively.
One banker hailed BSN’s tightened OID as a sign that the market was able to achieve price differentiation according to credit quality, something that has not always been a feature in Europe.
"It feels like the days when every deal priced with the same margin have gone, which is a good thing," said the banker. "That is very important when it comes to raising new money and showing off the efficiency of the loan market."
Last week, BSN gained a corporate family rating of B2/B from Moody’s and Standard & Poor’s, while Fitch gave the company a long term issuer default rating of BB- but said it expected to downgrade the company to B once the new debt was in place. The senior credit facilities were assigned Ba3/B+/BB.
Fitch estimated that BSN, which EQT is acquiring from Montagu, had total leverage of around four times at the end of May 2012. When Montagu bought the German bandages maker in 2006, the company had leverage of close to seven times.
