Investors are predicting concessions will need to be made on the massive $5.2 billion bank deal to back the acquisition of VNU N.V. by a consortium of private equity groups. With pricing of LIBOR plus 2 1/2% on the approximately $5.168 billion term loan and total leverage of 7.7 times, the buyside might pressure for more favorable terms on the underwritten deal for the Haarlem, Netherlands-based information and media company that owns Billboard Magazine.
"When Deutsche [Bank] calls and asks, 'What's the biggest ticket you can write?' you know they are focused on it," one portfolio manager said. "It's a big deal; they are going to have to price it up."
Citigroup, Deutsche Bank, JPMorgan, ABN AMRO and ING held a bank meeting last Monday at the Mandarin Oriental for a moderate crowd, an attendance repeated Thursday at the Ritz Carlton for the bond road show. The poor in-person attendance was probably due to the scorching heat, not lack of interest, investors who attended both sessions speculated, as there were plenty of investors on the phone hook-up. Citi is leading the bank deal and Deutsche Bank is leading the bond portion. Calls to bankers at Citigroup and Deutsche Bank were not returned. Deutsche Bank and ING spokesmen declined comment, as did a JPMorgan spokeswoman. An ABN spokesman and a VNU spokesman did not return calls by press time.
"It's a great business, has a good model with very predictable, stable cash flows," the portfolio manager said. "There are a lot of things to like about it, but they are going to have to pay off to get it to clear and trade well." One investor at the bank meetings said the leads announced they had received commitments from a number of agent banks, which should help get the ball rolling, but institutional investors still had one thing on their minds: pricing. "They need to price that sucker properly," another portfolio manager said. "They're still bringing out deals way too low they're playing games."
The financing consists of an approximately $688 million multi-currency revolver and a $5.18 billion term loan, which is broken into a $4.7125 billion tranche and a E380 million tranche. Pricing is LIBOR plus 2 1/4% on the revolver. Covenants on the deal include a maximum consolidated leverage ratio test. The bond portion of the financing consists of $835 million of senior notes due 2014 and $835 million of senior subordinated notes due 2016. Pricing is expected this week.
The response to the European bond portion was also less than receptive. During the London road show, questions arose about how the guaranteed structure works and what does and does not have guarantees. A European investor said his firm did not look at the bond portion and passed on the loans. "We declined because we think it is too much leverage for not enough compensation," the portfolio manager said.
AlpInvest Partners, The Blackstone Group, The Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners are purchasing the company for e7.5 billion, which represents a multiple of about 13.4 times 2005 normalized EBITDA.