Leveraged finance banks are sounding out investors in preparation for more holdco dividend deals in the wake of KDG’s €400m FRN PIK note. With the equity markets still selective, bankers see potential for private equity firms to return money to LPs through partial or full recapitalisations of portfolio companies.
The strategy has already helped boost prospects for year-end payouts ahead of a busy fundraising calendar in 2005.
“We’re sounding out investors to see whether more deals can be done at the holdco level. The markets are so strong, we think there is potential for wider use of the structure,” said the head of leveraged loans at a top five bank.
Kabel Deutschland Holding, owned by Apax, GS Capital Partners and Providence, priced Europe’s first holdco discount dividend deal. This is the second dividend the sponsors have extracted out of the company in the last few months, inflating leverage at the firm to 5.5x.
Pricing came at 99% of face value with a coupon of 850bp over six month Libor for a 10-year non-call one structure. This result may encourage other private equity firms to take advantage of demand for the private placement of non-cash paying, subordinated bonds.
Charterhouse-owned Coral Eurobet is already lining up a £1.245bn recap through Bank of Scotland and Lehman for the New Year; structural details are still firming up.
Spirit Group, a vehicle for Texas Pacific Group, Blackstone, CVC Capital Partners and Merrill Lynch Private Equity, has completed the UK’s biggest ever leveraged recapitalisation of a private equity-owned business. It closed a £2.125bn refinancing of the Scottish & Newcastle pubs estate, which it bought for £2.5bn in November 2003.
Aggressive dividend deals have been a feature of the US finance market for the last year. Apollo, Blackstone and Goldman Sachs pulled US$450m out of Nalco a month after the US$4bn buyout of the company.
European investors say that there is no longer the same degree of prejudice about recapitalisations, although most say they would insist on upstream guarantees.