Nordic Capital has caused a furore among its financiers by inserting a clause into its SKr9.045bn (€969.6m) recapitalisation of Ahlsell that would allow the debt to be transferred to a future owner.
Nordic Capital intends to dispose of the electrical, heating and plumbing products supplier within the next 12 months and hopes to increase the attractiveness of the business by locking in the financing now. Morgan Stanley has been mandated to run both the auction and the recapitalisation, with syndication of the latter currently nearing completion.
The recapitalisation is based on 6.2x total debt to earnings before interest, tax, depreciation and amortisation of about SKr1.5bn. On an industry average multiple of 9.5x to 11.5x Ebitda, Ahlsell could be worth between SKr14.4bn and SKr17.44bn (US$1.85bn–$2.24bn), a source close to the deal said. Morgan Stanley and Nordic Capital were unavailable for comment.
The management clause change sets strict criteria that any new sponsor would have to satisfy to inherit the debt. One is that suitors must have at least €1bn invested in Europe, which is thought to reduce the universe of potential sponsors to around 25.
Despite this, lenders are resisting its inclusion on the grounds that banks buy into a combination of sponsor, management team and business plan. “This erodes risk controls,” said one head of leveraged finance. “The market doesn’t want this and is taking a stand.”
A private equity source was unconvinced by the value of the structure. “We can’t see that this makes any difference,” said a partner at a top five European investor.
The criteria used to restrict the number of suitors were also criticised as being difficult to apply in practice, as this could still allow an unfamiliar player to step in. Total leverage was also cited as a reason for the market’s wariness.
Morgan Stanley defended the deal on the grounds that similar clauses had been used in other deals, notably NTL and iesy, and claimed that Nordic Capital was being punished for being open about its future intentions. One banker claimed that the clause allowed for a credit-enhancing event, adding that its removal would make a deal with a large sponsor less likely.
Should the disposal not take place, the clause expires after 12 months. The leads also pointed to Ahlsell’s strong distribution network, market share and high cash conversion rate, which at 85% places it just below the level typical of the directories businesses that have proved so popular with leveraged lenders recently.
Nordic Capital originally invested in Ahlsell in 1999 through its Trenor Holding vehicle, through which it owns a 96% stake, and tried to exit its interest via an IPO in 2002 using SHB and Carnegie as bookrunners. The attempt was withdrawn due to market conditions. Despite this setback, Nordic Capital has succeeded in growing the business during its tenure, with sales increasing from SKr7.41bn in 2000 to SKr11.1bn (pro forma SKr13.5bn) in 2004.
The planned exit over the next 12 months follows eight deals to bulk up Ahlsell since Nordic Capital acquired majority control at the end of 1999. Its most recent buy-and-build was to purchase Norwegian telecom cable manufacturer Nexans Distribusjon from France’s Nexans for SKr426m.
Nordic Capital initially paid SKr6.5bn for a 51% stake in Trenor, which also owns separate metal wholesalers Broderna Edstrand and Reynolds, from Swedish industrial conglomerate Trelleborg. In March 2004 Nordic Capital bought the remaining stake in Trenor from Trelleborg for SKr1.1bn.
The recapitalisation’s structure includes, comprises a SKr2.24bn seven-year term loan A at 225bp over Libor, a SKr1.4bn eight-year term loan B at 275bp, a SKr1.4bn nine-year term loan C at 325bp, a SKr500m revolver at 225bp and a SKr1.5bn seven-year acquisition line at 225bp. Leverage is 4.5x senior net debt to Ebitda, 5.1x including the second lien, and 6.2x total.
If you do not receive this within five minutes, please try and sign in again. If the problem persists, please
email: