Investors cram € 10.3 billion in funding for TKE buyout
LONDON, July 2 (LPC) – A € 10.3 billion loan and bond financing backing the buyout of ThyssenKrupp Elevator has raised more than € 20 billion in investor orders, allowing arrangers to leverage the capital structure, tighten prices and stay in the flex to pay the full cost, allaying any fears of selling such a big deal during the Covid-19 pandemic.
Advent, Cinven and German foundation RAG agreed to a € 17.2 billion acquisition of Thyssenkrupp’s elevator division in February, underwritten with debt financing put in place before Covid-19 disrupted markets.
The jumbo deal was launched cautiously in June, but ended before the June 30 deadline after a successful syndication process and has since traded well in secondary markets, delighting arrangers and investors alike.
“There was something for everyone in this deal – loans and bonds, guaranteed, unsecured, in euros and dollars. They have raised a huge amount and it has traded well, which suggests the world is alive and well at the moment, ”said a senior investor.
During syndication, the loan portion of the financing was adjusted to take into account strong investor demand. A euro TLB increased to 1.015 billion euros from 1 billion euros at launch, while a dollar TLB increased to 2.55 billion euros, from 2.05 billion euros. A term loan A equivalent to 500 million euros, denominated in dollars, which was placed in the capital structure as a safety net and which could have allowed the arranging banks to keep the paper, was canceled, following the strong demand from investors.
While margins remained the same at 425bp versus Euribor / Libor, loans valued at 98 OID, after launching at 96-97.
The company tightened prices on all tranches of its bonds before closing. The price of a € 1.1bn 7NC3 senior secured note was 4.375%, previously 4.5% -4.75% and of a 7-year guaranteed variable rate note without call one of € 500m at the price of 475bp against Euribor at 99.5 OID. A three senior without appeal of 650 million euros over eight years at a price of 6.625%, from 6.75% to 7%, after whispers of 7% to 8%.
ThyssenKrupp also landed two tranches in US dollars: a senior 7NC3 equivalent to 1.5 billion euros secured at 5.25%, against 5.5% and a senior 8NC3 equivalent to 401 million euros at 7.625%, from 7.75% to 8%.
The financing had been subscribed before the health crisis and, given its size, was essential as a benchmark operation. Therefore, the documentation was one of the most aggressive seen in the leveraged market to date.
The financing was closed, but only after the borrower gave in to investor demands and made some investor-friendly changes to its documentation.
“TKE merged all the previous ones and created a document riddled with holes that offered no protection. [With the changes] He still has reasonably aggressive documents, but he has mastered a lot of excesses and has shown investors won’t just turn around, ”a union official said.
Some of the changes to the loan include the removal of a margin reduction. Ticking fees have also tightened, so vacations are now 45 days instead of 120 days and will pay 50% of the margin for 46 to 90 days, down from 121 to 180 days. MFN treatment is now 12 months compared to six months.
There is a 25% cap on Ebitda adjustments, whereas before there was no cap.
The basket of free tickets has increased from 100% to 75%, where before you could increase leverage by 1.0 turns as additional debt, now it can only be three quarters of a turn.
The baskets of ratio-based and supplemental debt stocks, that is, the ability to raise, have all been tightened.
Restricted payments, and therefore the possibility of subscribing to a dividend, have been reinforced. There has also been a tightening around the divestiture of the product so that when an asset is sold a company has to repay its debt with certain exemptions and those exemptions have been reduced.
There has also been a relaxation of portability. The borrower had a clause saying that no lender could own more than 10% of the capital structure to prevent a lender from being too influential, however, this was removed which will create more liquidity for investors .
The changes to the documentation will become the new benchmark for other deals to follow in a post-Covid world, but the deal is still seen as aggressive.
“There have been a few concessions but everything is relative, it’s still a pretty aggressive doc,” said a second union official.
The lead investor added, “Even with the changes, the documents are still heavily stacked in favor of issuers and I don’t think he will ever move away from this situation. The toothpaste came out of the tube and it won’t fit. There are so many baskets, exceptions and exemptions on TKE that it’s ridiculous. From day one they can increase the debt, so there is no real control over it, tightened or not. “
One of the fears surrounding imprecise documentation is that any increase in debt could lead to downgrading, whether or not the credit has performed well.
Yet while the emphasis is on documentation, this is a secondary consideration as investors focus on a credit and its cash flow, predictability and defensibility.
Considering its size, it was very difficult for investors to say no to TKE as they needed to have it in their portfolio to be relevant and diverse.
“Very few people let the documents sway the appetite because they all needed the asset. Ultimately, you don’t want to worry too much about documentation. You shouldn’t have to rely on law enforcement because you would like to believe that the work of credit analysts is so good that there is nothing to fear. TKE is of sufficient size and scale that people aren’t too worried, but it wasn’t a given, ”said the lead investor.
The financing also included € 2bn of unfunded credit lines, including a 6.5-year € 1bn revolving credit line, paying 300bp on Euribor / Libor and a guarantee facility of € 1bn out of 6.5. years, at the payment of 2.75%. There is also a EUR 2 billion PIK which was placed with a number of direct lenders, including GS MBD, about a week after the deal was closed. (Edited by Christopher Mangham)