Fresh from its £1.35bn buyout of Saga, Charterhouse is recapitalising another portfolio company because it does not feel that conditions are yet right for a full IPO exit. The firm is planning a £1.245bn recapitalisation of Coral Eurobet, the UK’s third largest retail bookmaker that it acquired in a €1.4bn buyout in 2002. An IPO is still on the cards, meaning that Charterhouse could have a further dividend out of the company before it makes the realisation.
Charterhouse opted for a partial recapitalisation earlier this year. It refinanced the company on an all-senior basis, taking out the more expensive subordinated portion of the original buyout financing. The company has performed well since the buyout, and is set for growth through the roll-out of new products enhancing its tele-betting operations.
Bank of Scotland and Lehman Brothers, the arranger of the 2002 buyout loan, are leading the current recapitalisation. The deal will not launch until the New Year but UBS has already joined as a mandated lead arranger committing £200m and one other bank is expected top join on the same terms.
Debt is split between £1.045bn in senior debt and £200m in mezzanine debt. Lehman is sole underwriter of the mezzanine tranche. Senior debt comprises a £485m seven-year term loan A at 225bp over Libor, a £245m eight-year term loan B at 275bp, a £245m nine-year term loan C at 325bp, a £60m seven-year acquisition line at 225bp and a £10m revolver at 225bp.
The £200m warrantless mezzanine debt pays 4% cash and 4% roll up for an all-in of Libor plus 8%, substantially below the 9.5% that Weetabix paid on its mezzanine tranche earlier this year and which set a benchmark for aggressive pricing at the time. Total net debt to Ebitda is 6.25x, while senior net debt to Ebitda is just over 5x.
Mezzanine pricing is under pressure generally because the bid from hedge funds is so strong. Intermediate Capital Group, a traditional mezzanine provider, said recently it had passed on mezzanine arranged by banks because returns did not reflect the appropriate risk. It implied banks were selling cut-price mezzanine to investors unfamiliar with the asset class.
Charterhouse is currently investing from its seventh fund, which closed with €2.7bn in commitments in July 2003. Its 1997 CCP VI fund, close at €1.8bn and is fully invested. Based on 14 recent realisations, it has delivered a 71% IRR on investments. Longer-term performance based on 103 realisations delivers 43% IRR.
Its portfolio includes TDF, Cegelec, Lucite International, Tussauds Group and PreCon. It has completed over 110 transaction, worth €22bn in aggregate since inception.