Softly, softly in Europe

The overhang continues to cast a perilously long shadow over leveraged finance in Europe, with no sign of the market opening up for full large-scale public syndications.

While in the US banks are breaking large deals into more easily digested pieces and publicly marketing the discounted paper (see feature opposite), European bookrunners continue to focus on one-on-one meetings with investors and behind the scenes efforts to sell down piecemeal the overhang of mega-buyout debt.

Liquidity is being tested with a small number of more public deals. Citi and Credit Suisse, who are marketing US$5bn of the US$15bn senior debt for First Data, are bridging the Atlantic this week, with around US$1bn euro equivalent of the piece being targeted at European investors.

Last week also saw Bank of America and Deutsche Bank launch a US$1.375bn credit facility for chemical distributor Univar which includes a US$275m term loan A partially being sold in euros.

While there has been no successful large-scale sell-down of even discounted debt in Europe, neither has there been forced selling from the underwriters long into the market.

Arranging groups continue to maintain their collective discipline, even in the face of the impetus of quarter and year-end reporting. With discipline holding, investors may abandon hopes of an impending fire sale bona`nza and begin to edge back into the market at current levels.

The result so far is an extremely limited flow of primary deals, with those deals which are in the market likely to remain focused on bank investors, with relationships the word of the moment in European leverage.

While last week saw details emerge of the huge debt package being underwritten for a buyout of UK retailer J Sainsbury, smaller and mid-market deals are likely to be the only new deals mandated in coming months.

Smaller deals do continue to close. Bank relationships were invoked by bookrunner Nordea which has closed syndication of SKr7bn in senior facilities backing Nordic Capital‘s secondary buyout of Thule from Candover.

Syndication of senior and second-lien was targeted to a relationship group. The senior piece was fully signed on September 20. The mezzanine provider signed into the transaction by closing on July 27 2007. According to the bookrunner, demand for the deal was high enough for it to turn down commitments from some banks.

Thule is a Swedish sports utility business, with products including rooftop boxes, roof rails, snow chains, towing systems and motor home accessories. It had pro forma sales of SKr6.6bn in 2006.

At the smaller end of the market, deals are still do-able, particularly as clubs. European Capital, a small and mid-market financial investor, refinanced £31m of senior credit facilities for portfolio software business Miles 33 Group.

Bank of Ireland and Lloyds TSB Bank each provided £15m of loan term facilities with Lloyds TSB providing an additional £1m revolver.

In Germany, Dresdner Kleinwort is out with a €220m debt package supporting HgCapital‘s buyout of SLV. Debt here is split between a €170m senior loan and €25m tranches of second-lien and mezzanine debt.

David Cox