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 E3.7 billion. If the deal goes through, the proposed financing would comprise more than E2.6 billion in bank debt and a substantial bond portion. Bankers were divided on the potential leverage levels, but one banker said it is a pretty aggressive structure. Bankers at CSFB and RBS declined to comment, while bankers at Lehman could not be reached.
The proposed structure of the bank debt, which will be denominated in euros except for a possible U.S. dollar tranche, breaks down into multiple tranches. A seven-year, E250 million revolver and a seven-year, E300 million borrowing-base revolver are both priced at LIBOR plus 21/ 4%. A 180-day, E200 million cash bridge also will offer pricing of LIBOR plus 21/ 4%. There will be two "A" tranches--a seven-year, E646 million piece and a five-year, E150 million loan--priced at LIBOR plus 21/ 4%. An eight-year, E425 million "B" tranche is priced at LIBOR plus 23/ 4% and a nine-year, E425 million "C" tranche will offer LIBOR plus 31/ 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 leveraged bank loan market, which has seen just E18.6 billion in issuance so far this year versus E47.7 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 prospective financing package.