Banks preach co-financing benefit

Co-financing simultaneously through the loan and bond markets is on the increase in Europe as banks, struggling with the eurozone debt crisis, convince borrowers to tap both in order to gain access to as much liquidity as possible and ensure successful debt raisings.

Last week saw two sizeable deals launch for syndication, with both comprising bond and loan tranches – German ball-bearings maker Schaeffler and mobile phone operator Orange Switzerland.

“At the moment a two-pronged attack is the best method for getting a deal away: you need to tap into every pocket of liquidity that you can, and at the moment that means bonds as well as loans,” an investor said.

The debt package backing Apax Partners’ SFr2bn (US$2.18bn) buyout of Orange Switzerland includes SFr567m in loans, a €150m floating-rate note, a SFr425m senior secured note and a €225m senior note.

“The bond market is hot and there is good liquidity so it should be taken advantage of in addition to loans”

The structure was amended last Thursday when the original SFr850m loan was reduced and the bond tranches were increased. That change illustrated that the major benefit of a co-financing is the structural fluidity, enabling leads to react to wherever demand lies, as indicated by investor feedback.

“The bond market is hot and there is good liquidity so it should be taken advantage of in addition to loans, especially for the larger leveraged deals. Where you can access liquidity in both markets it will be good for keeping pricing down and creating competition,” another investor said.

Debut

A loan and bond co-financing is also being used for Schaeffler’s approximately €8bn-equivalent refinancing, which marks the borrower’s debut in the bond market.

The debt package, which will replace its existing €7.7bn facility originally agreed in 2009, includes about €6bn-equivalent of loans as well as senior secured notes, which were doubled in size to €2bn equivalent last Thursday after a positive reception from investors. The financing has euro and US dollar elements.

“Banks need to be as broad as possible. There are no prizes for being narrow because if you get syndication wrong it is a cruel market”

The company, a solid corporate name in Germany, is looking to sell its €1bn, five-year TLC-2 to European and US investors in a bid to access a larger pool of liquidity. It is expected that about two-thirds of the TLC-2 will be syndicated in the US.

Schaeffler is the third European borrower this year, after German cable TV operator Kabel Deutschland and Belgian-based Taminco, to syndicate loans in the more liquid American market. Demand for the Kabel Deutschland loan proved to be robust enough in the US to allow the company to increase the loan to US$750m from US$500m.

“Banks need to be as broad as possible. There are no prizes for being narrow because if you get syndication wrong it is a cruel market,” a banker said.  “Anyone looking to place credit today should have an appreciation of both the loan and bond market as well as euro and dollar currencies, as the market moves so quickly that what is in favour today may not be in favour tomorrow. It is simply a hedging of bets.”