Cognis highlights investor convergence

Bookrunners Goldman Sachs and JPMorgan have significantly cut the cost of capital and loosened terms for sponsor-backed Cognis with a comprehensive and innovative €1.65bn-equivalent refinancing.

Cognis is a German speciality chemicals and nutritional ingredients business backed by sponsors Permira, GS Capital Partners, and SV Life Sciences.

The deal exemplifies the rapid convergence between the European leveraged loan and high yield markets – in particular loan arrangers’ move towards bookbuilding pricing and the absence of maintenance covenants. Aggressive repricing, the chief rationale behind the move, is now the key driver of deal flow in European leveraged loan and high-yield markets.

The new facility is split between €610m and US$293m in bonds rated B1/B (stable/stable) and €610m and US$293m in loans, due 2015. All tranches priced at 100% Friday afternoon and pay quarterly coupons of three-month Euribor/US Libor plus 200bp.

The proceeds will repay first- and second-lien debt and up to €350m of PIK notes. The existing and second-lien notes paid 475bp over Euribor with the PIK notes paying 900bp over Euribor.

The new issues were four times covered when the deal priced Friday, in spite of the pricing being seen as aggressive and Moody’s downgrading the Cognis family rating to B2.

All four tranches are “covenant-light”, meaning they have only incurrence covenants rather than more typical maintenance covenants, lightening the terms as well as the cost of capital.

The deal is the first senior facility to be priced and allocated in this way and highlights the increasing convergence of not only the US and European markets but more significantly of the leveraged loan and high yield markets. The public rather than market feel of the deal was reflected in the split between notes and loans being decided in the market alongside the pricing.

The euro/dollar split of around 70:30 reflects Cognis’ cash flow rather than investor appetite but is understood to have been reflected in the breakdown of North American and European investors.

Donal O’Donovan