Structural and price flexing has become unremarkable in the European leveraged space – indeed a flex is now entirely predictable on any financing which, like Vivarte, initially includes a mezzanine tranche.
If the flexes are approved senior debt will be made up of a €1.165bn term loan B priced at 200bp over Euribor and a €1.165bn term loan C at 250bp over Euribor. Each tranche has been increased from €1.12bn while both margins are cut by 25bp.
The remaining facility will now be made up of €400m second lien piece, increased from €245m, with the margin cut 75bp from 425bp over Euribor to 350bp. The scrapped €245m of mezzanine had paid a comparatively heady 825bp-over Euribor.
While the pricing flex proposes to tighten yields the structural flex would simultaneously increase investor risk, by demoting seniority across the remaining capital structure through the scrapping of the most junior mezzanine tranche.
With pricing on the term loan C at just 250bp even the aggregated margin across the senior piece is excruciatingly tight, putting real pressure on investors to find anything like a desirable return.
However with yields of significantly under 200bp-over achievable for sponsors through senior secured floating rate note issuance loan investors are faced with the stark choice of participating in leveraged loans with ever decreasing returns or stepping back from the leveraged market entirely.