Credit Suisse First Boston, Lehman Brothers and Royal Bank of Scotland are preparing a mammoth leveraged loan and bond deal backing Kohlberg Kravis Roberts and Wendel Investissement's attempted buyout of Legrand from Schneider Electric for EUR3.7 billion. If the deal goes through, the proposed financing would comprise more than EUR2.6 billion in bank debt and approximately EUR900 million in bonds. That translates into total leverage of six times and senior leverage of four times, one banker noted, adding that those levels are pretty aggressive.
The proposed structure of the bank debt, which is denominated in euros, breaks down into multiple tranches. A seven-year, 250 million revolver and a seven-year, 300 million borrowing-base revolver are both priced at LIBOR plus 2 1/4%. A 180-day, 200 million cash bridge also will offer pricing of LIBOR plus 2 1/4%. There will be two "A" tranches-a seven-year, 646 million piece and a five-year, 150 million loan-priced at LIBOR plus 2 1/4%. An eight-year, 425 million "B" tranche is priced at LIBOR plus 2 3/4% and a nine-year, 425 million "C" tranche will offer LIBOR plus 3 1/4%. This "C" tranche is the most likely candidate for U.S. syndication, the banker said, adding that the move should deepen the pool of prospective investors.
The deal would be a welcome boon to the European bank loan market, which has seen just EUR18.6 billion in issuance so far this year versus EUR47.7 billion for the same period last year. The dropoff in LBOs and the decline in the telecom and cable sectors are major factors, one banker said. However, a number of massive LBO deals are in the works, including a $3.5 billion deal for Jefferson Smurfit Group.
European regulators ruled that Schneider had to separate from Legrand, presenting the company with three choices: an initial public offering, a spinoff or a direct sale. Schneider has entered into a period of direct negotiation, which ends next Monday, with the two private equity shops, a Schneider spokeswoman said. She declined to comment on the perspective financing package.