AA launches 1.85bn recap

Automobile Association (AA) is in the market with a £1.85bn leveraged recapitalisation that highlights the rapid growth of the European institutional market.

Barclays is MLA on the deal, which will see more than £500m of debt added to the B, C and subordinated debt tranches – the ones to which institutional investors lend. The loan recapitalises the £1.3bn loan that backed CVC and Permira’s buyout of the company in 2004. Bank of Scotland and HVB have joined ahead of launch.

Senior debt is split into a £373m six-year term loan A at 225bp over Libor, a £400m seven-year term loan B at 250bp, a £395m eight-year term loan C at 300bp, a £100m six-year revolver (including a £50m acquisition line) at 225bp and a £105m six-year receivables line at 225bp. Subordinated debt comprises a £130m 8-1/2 year second-lien tranche at 500bp, a £126m nine-year warranted mezzanine tranche paying 4.5% cash and 5% PIK, and a £89m nine-year junior mezzanine tranche.

About £50m of the warranted mezzanine debt has been prepaid. Pricing on the mezzanine debt is substantially lower than on the then-record £400m debt. That paid 10.5% after being flexed down from 11.5% after a healthy oversubscription.

The increased debt, which sees the sponsors take more than £500m in equity out of the company, has been added to the tranches that are aimed at funds.

The recapitalisation is being done as an amendment, so existing syndicate members will earn a 20bp consent fee to grant the waiver. No fee is offered on additional commitments, reflecting the fact that the deal is aimed at funds. Leverage is slightly higher as a result of the recapitalisation at 4.8x senior net debt to Ebitda, 5.3x through the second lien and 6.4x total. Leverage on the original facility was 5.5x total and 3.9x senior.