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Hellman Taps Unlikely Lenders For Goodman Deal

By Timothy Sifert

In a market where leveraged funding is scarce, buyout shops are beginning to tap all the sources available to get a deal done.

Look no further than Hellman & Friedman, the San Francisco buyout firm, which called on an usual club of lenders to back a $2.65 billion play for heating, ventilation and air-conditioning company Goodman Global. Barclays, Calyon, GE Commercial Finance and GSO Capital Partners—none of them very active leveraged lenders in the United States—agreed last week to provide $1.1 billion in senior secured credit facilities to back the delisting.

The transaction is an anomaly first because there have been few billion-dollar-plus buyouts announced since the debt overhang reached its apex, and Goodman Global’s price tag makes it one of the biggest sponsor-backed deals announced since before July 4. Even more interesting for a buyout of this size, however, is that the debt package is being structured like a club deal rather than one that intends to be widely syndicated. Indeed, the lenders have said they intend to hold the debt.

Adding to the deal’s unusual structure, the loan financing is being supplemented by a $500 million commitment for senior subordinated financing from GSO and hedge fund Farallon Capital. Typically, buyout shops would use investment banks for subordinated debt.

Despite the fact that the inventive structure allowed the deal to get done, market participants don’t expect a slew of more deals like this. Investment banks and lenders are still working their way through some $300 billion in committed leveraged loans, stalling the market for large-scale deals. But as the market for new buyout financings gets back off the ground—and participants expect it will by early 2008—investment banks will resume more typical commitments. That means syndication will again become commonplace, according to a knowledgeable banker.

There are already some signs of banks returning to the market. Goldman Sachs, for example, has agreed to provide nearly $1.2 billion in debt financing for the purchase of Boise Paper from Boise Cascade. The financing includes $975 million in senior secured term loans and a $250 million revolver, both of which will fund the cash portion of the purchase.

In the Hellman & Friedman deal, Goodman Global stockholders receive $25.60 per share. The purchase price represents a 17 percent premium to the closing share price the day before the deal was announced and a 42 percent premium to Goodman Global’s April 2006 IPO price. It is expected to close in the first quarter of next year.

Goodman Global is a former portfolio company of Apollo Management.

Timothy Sifert covers leveraged lending for IFR, a sister publication of Thomson Financial.