An €818m loan backing the buyout of French veterinary pharmaceuticals firm Ceva Sante Animale is the first post-crisis, euro-denominated covenant-lite deal to be raised for a European company. The deal was initially launched in euros and US dollars, but was heavily oversubscribed in euros, allowing the arranging banks, which underwrote the deal, to remove the dollar tranche.
Cov-lite loans have been introduced to Europe on dollar and euro-denominated cross-border deals, initially for US companies and subsequently for European companies.
“One of the last taboos has been broken. Now there is no reason why a borrower wouldn’t be able to do covenant-lite in Europe”
The transatlantic connection has allowed arranging banks to push US terms into the European market. European investors initially protested against cov-lite loans but have become more willing to invest in these riskier deals because of the lack of alternatives.
“The dollar portion of Ceva’s deal made it easier for European investors to accept US terms on a European deal, namely a lack of covenants. The bait worked as European investors have signed up to it, making it the first pure European covenant-lite deal,” a banker said.
Credit Agricole, Goldman Sachs, Natixis and Nomura were joint bookrunners, and BNP Paribas and ING joined as mandated lead arrangers. Four of the banks took large holds across the capital structure, showing that banks as well as institutional investors are willing to invest in riskier financing. It was allocated and started trading in the secondary market last week.
More on the way?
Ceva is liked by investors, who are drawn to its strong performance in a popular sector. However, the move to cov-lite was also made possible by market technicals as borrowers take advantage of cash-rich investors desperate to put money to work at a time of low deal flow. It is expected that the deal will pave the way for further pure European cov-lite financings.
“One of the last taboos has been broken. Now there is no reason why a borrower wouldn’t be able to do covenant-lite in Europe. You could even get a deal that is launched solely as a European covenant-lite deal without the initial threat of a dollar portion,” a second banker said. “Combined with an increase in deal flow, investors will have to start picking a credit on its quality rather than by its financing structure.”
Ceva’s deal was seen as aggressive. In addition to being cov-lite, it did not have a “double luxco” structure, which means that investors cannot enforce security without going through French courts if the company defaults.
Ceva’s loan was launched as a dual-currency €668m-equivalent Term Loan B with pricing of 350bp over Euribor on the euro tranche and 325bp over Libor on the dollar tranche. Both tranches were offered with a 1% Libor floor and a 99.5 OID.
Final pricing for the TLB and a €100m capex facility is 350bp with a 1% floor. The TLB is offered at 99.75. There is also a €50m revolver paying 350bp. A PIK loan of around €200m is also included, which was preplaced with the Ardian mezzanine fund.
