Primary deals pitched into collapsing sentiment

Sentiment in the leveraged market took a further battering last week, with the market at its lowest ebb since the worst of the credit crisis that sucked liquidity and confidence out of the space in July and August.

The bearishness comes as a blow to arrangers, who had been prompted by the better market in October to bring back a number of legacy deals into syndication at a point where rising liquidity and sentiment appeared to provide the basis of a firm recovery.

There are fears that over-leveraging throughout the financial system now means financial institutions are exposed to vast but un-quantified risk; this is again overshadowing every credit decision taken by investors.

Some bank investors in particular are reported to be effectively closed to new business ahead of the year-end – making syndication of overhang deals especially challenging.

These deals are competing with newer leverage deals structured to meet CLOs’ desired average weighted interest spreads with blended margins in the area of 325bp over Libor, as well as low gearing and amortising tranches targeting bank investors.

Arrangers suggest, however, that there are still deals finding support in the market when offered at credible levels. Among them is OGF. Credit Suisse has launched a more conventional syndication of senior facilities backing the €780m secondary buyout of the French undertakers, following bookbuilding to find a clearing OID for second lien and mezzanine tranches. A bank meeting is scheduled for today (Nov 22).

A light supply of new deals has continued despite the shaky market conditions. MLA and bookrunner ING has launched the €395m debt package for German cable operator Primacom. Financing is split between €250m in senior term facilities, a €120m mezzanine facility and a €25m revolver.

Terms reflect second-half 2007 conditions. The senior facilities are split between a €50m seven-year term loan A priced at 300bp over Euribor, a €50m eight-year term loan B1 at 375bp, a €50m eight-year term loan B2 (bridge loan) at 250bp, a €50m nine-year term loan C1 at 425bp, and a €50m nine-year term loan C2 (bridge loan) paying 300bp.

As well as primary LBO deals there are a number of deals in the market featuring existing leveraged names looking for add-on facilities to finance bolt-on acquisitions.

TdF has mandated a €170m add-on facility via physical bookrunners BNP Paribas and Citi to back its acquisition of Deutsche Telekom‘s Media&Broadcast unit. Additional bookrunners are HSBC, Merrill Lynch and Morgan Stanley.

Meanwhile Goldman Sachs has closed syndication of a €55m add-on financing for autoparts maker Honsel. The deal, along with a €30m equity contribution, backs the acquisition of Spanish autoparts supplier Tafime.

The deal is an add-on to the €480m facilities put in place for Honsel in June and pays the same margins as the earlier deal

Mandates are still also being won. Bank of Scotland, Dresdner Kleinwort, RBS and SEB have been mandated to arrange the SKr9.6bn (€1bn) financing of the LBO of Securitas Direct. A consortium called ESML Intressenter made up of EQT Partners, SakI AB, Melker Schorling and Investment AB Latour has offered US$1.4bn in cash for Securitas.

Credit Mutuel – CIC has been mandated to arrange and underwrite the senior €113.4m debt package supporting the acquisition of Anjac by Investcorp’s Orexad.

Senior debt is split between a €41.7m seven-year term loan paying 225bp over Euribor, a €41.7m eight-year term loan at 275bp and a €30m seven-year amortising acquisition line ipaying 225bp. In addition there is a €15m mezzanine facility arranged through Credit Mutuel – CIC and Euromezzanine.

Syndication of the fully funded transaction is expected to be launched in the first quarter of next year. Orexad is the result of Investcorp’s acquisition of OREFI in May 2006 and the industrial supplies arm of automotive replacement components supplier Autodistribution in January this year.