Alliance Boots books shift mezz

Bookrunners have sold down close to 100% of Alliance Boots mezzanine tranche. The tranche accounts for £750m of the £9.02bn of financing backing KKR‘s take private of the UK group.

The mezzanine piece had been the only part of the Alliance Boots deal actively marketed since July, when bookrunners Deutsche Bank, JPMorgan, UniCredit (HVB), Barclays, Citi, Banc of America, Merrill Lynch and RBS pulled the senior and second-lien tranches having failed to find investor support.

“The book for the mezzanine tranche was close to subscribed by the end of July before interest faded,” according to a source, “more recent positive sentiment has now brought back buyers.”

The 10-year facility pays 650bp, increased from an initial margin of 600bp, and was sold to traditional mezzanine investors with tickets ranging from triple digits of millions to single digits.

According to a bookrunner on the deal, the deal was offered at 95% of par, though sources away from the deal say discounts are likely to have been considerably more and negotiated with investors on a one-to-one basis.

The suggestion that discounts were significantly deeper than 95% on the mezzanine piece reflects investors’ expectations of margins ‘no lower than 10%’.

Mezzanine investors have been the most notable beneficiaries of the leverage finance squeeze.

The evaporation of liquidity has seen their margins rise back towards historic levels while competing products such as second lien have been squeezed out of structures which also feature less senior debt and lower leverage.