Springer Wins Aggressive Terms On Loan

The multi billion euro financing backing BC Partners’ acquisition of German publisher Springer Science+Business Media has secured aggressive terms from banks battling to keep leveraged loan business in Europe, bankers told sister service Thomson Reuters Loan Pricing Corp.

Springer’s financing of around 2.5 billion euros ($3.35 billion) is the first large European buyout loan to be underwritten without covenants as a covenant lite loan. The financing, which also has relatively high leverage with debt to earnings of 7x, could be the precursor to more covenant lite loans, bankers said.

“Springer is the first big covenant lite deal in Europe. It should educate the market so more (covenant lite loans) will emerge for a variety of deal sizes and sectors,” one of the bankers said. Private equity firm BC Partners agreed in June to buy Springer for 3.3 billion euros.

Covenant lite loans offer little or no protection for lenders via financial tests. While they are a regular feature of the U.S. leveraged loan market, European investors have resisted covenant lite loans to date. The free availability of flexible covenant lite financing in the U.S. has prompted European companies to raise U.S. leveraged loans.

The European market is now hoping to reverse this exodus of fees and business by offering covenant lite loans. Barclays, Credit Suisse, Goldman Sachs, JPMorgan, Nomura and UBS have underwritten the financing, which is also the largest western European buyout loan since the 9 billion pounds financing backing Alliance Boots buyout by Kohlberg Kravis Roberts & Co in 2008.

Covenant-lite financing has been available to stronger companies in the U.S. since 1995. European investors have traditionally preferred covenants but are now realizing that they need to make concessions to keep lending. In the United States, $126 billion of covenant-lite loans have been signed so far in 2013, surpassing the $83.5 billion of covenant-lite loans completed in 2012, according to Thomson Reuters LPC data.

Chemical company Oxea Germany’s $1.43 billion refinancing in May was the first European covenant-lite loan since the financial crisis began in 2008. The deal included a 450 million euro tranche for European investors.

Springer’s buyout loan is due to test market sentiment and capacity for large European covenant lite loans, which are expected to appeal to fund investors more than traditional bank investors. Bankers are confident that they will be able to place Springer’s loan with European and U.S. institutional investors, which have money to lend and relatively few deals to invest in.

The new financing will be split between euro and dollar loans and will also include subordinated debt, which is expected to be a private high yield bond, bankers said.

Claire Ruckin is a correspondent for Reuters LPC in London.