Goldman Sachs and J.P. Morgan will launch syndication of a $450 million bank deal and $275 million of subordinated debt for GS Capital Partners 2000 in late June, backing the acquisition of Berry Plastics with a highly leveraged deal that is expected to test market appetite for the expected spate of leveraged buyouts in the works. Bankers said the debt package will comprise a total leverage multiple well over five times--an aggressive play for a plastics company.
"This is the biggest LBO of the year so far and will be one of the most leveraged deals of the year," said a banker. Total leverage levels on LBO deals dropped to 3.5 times in February this year whereas in 1997 and 1998 levels hit well over five times. But one banker who works with financial sponsors, said Associated Materials was 4.5 times total, and Tyco's plastics business was set to be over five times before the sale was pulled. The banker added, "For quality properties leverage multiples have moved up." Banks have been pitching hyper aggressive LBO deals to private-equity firms in the last few months to try and kick-start the slumbering market LMW(4/22).
The $450 million of bank debt for Berry includes a $300 million "B" tranche; a $100 million revolver and a $50 million delayed draw term loan, with only the "B" funded at close. Tenor on the pro rata is six years and the "B" is eight years. Ira Boots, president and ceo of Berry, stated last year's EBITDA figure as $110.8 million. GS is putting in approximately $262 million of equity or about 30%, a banker added. One banker said the deal would be scarfed up, as the company has very stable cash flow, and sells into stable end markets. "This is exactly the type of deal investors have been screaming for," he claimed. A rival banker said the company has been "LBO'd" before and the fact J.P. Morgan, one of the sellers, is also providing financing is a pretty good sign. But another banker said ratings would play a strong factor. These have not been assigned and pricing has not yet been set. Single 'B' deals such as Columbia House and Herbalife have had a tough time in the market, he noted. One buysider noted the leverage is high but not horrific, while another commented it also depends on the industry.
The Goldman private equity fund is buying Berry, a manufacturer of injection-molded plastic products, from J.P. Morgan Partners, First Atlantic Capital and Aetna Life Insurance Company for $837.5 million and "intends to continue Berry's growth strategy, which includes acquisitions," said Boots, declining to comment on the debt. He referred calls to Goldman spokeswoman Andrea Rafael, who also declined comment on the financing of the deal. "GS Capital Partners was impressed with Berry Plastics history of growth and strong management team and it fits in line with what we look for in a private equity investment," Rafael said. Goldman was the adviser to the buyer and Credit Suisse First Boston and J.P. Morgan advised the seller.