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Sunday, 22 October 2017

IFR Top 250 2007: Europe's new media giant

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The combination of German broadcaster ProSiebenSat.1 Media (P7S1) and Europe's second largest broadcasting group, Luxembourg-based SBS will create the second biggest broadcast business in Europe, second only to RTL, as well as one of the largest leveraged borrowers in Europe. Donal O’ Donovan reports.

Bookrunners Lehman Brothers, Bank of America, Credit Suisse, JPMorgan, Morgan Stanley, RBS and UniCredit Group (HVB) are in the market (as of mid June) with a large and complex €7.9bn package to back the creation of a major new European broadcasting business.

The debt package currently in syndication implies debt of 4.5 times Ebitda through the opco, 6.6 times through senior debt, 7.5 times through second lien and 8.5 times Ebitda in total. Prior to launch, Calyon had already committed to the pro rata facilities as MLA.

Media deals remain a key target area for buyout funds, not least because sponsors are less bound by regulators' concerns than are trade buyers. In fact, while the private equity industry has grown increasingly concerned about governmental oversight, the P7S1 buyout only happened thanks to the action of the German Federal Cartel Office, which prohibited the acquisition of the business by Axel Springer Verlag at the beginning of 2006.

Germany's Federal Cartel Office prohibited the €4.2bn agreed purchase of the broadcaster by trade buyer Axel Springer on the basis that it breached Germany competition rules. That decision opened the way for the current sponsors to launch their later bid.

The underlying strength of the sector is also a draw. “Private equity firms recognise that the European media market is offering strong growth potential for investors, and as a result invested 44% of the aggregate deal value,” said Olivier Wolf, media sector leader at PricewaterhouseCoopers.

The genesis of the current deal goes back to 2005, when Permira and KKR acquired a majority stake in Luxembourg-based SBS Broadcasting from shareholders including Liberty Global for a total of €1.864bn (US$2.279bn) in a leveraged-buyout transaction. The consideration included €1.691bn in cash and the assumption of €173m in liabilities. Another SBS shareholder Telegraaf Media Group holds around 20% of the existing business and is likely to take a minority stake in the combined P7S1/SBS in return for giving up its option to acquire all of SBS and thereby potentially block the planned merger.

In December 2006 the same sponsors, acting through a newly incorporated holding company Lavena Holding 4, bought all of the voting and preference shares of P7S1 held by German Media Partners in a €3bn deal that secured 88% of the voting rights and an around 50.5% economic interest in P7S1. The previous owners are believed to have tripled their money on the transaction.

Then in January this year sponsors launched a further voluntary tender offer to acquire the remaining shares in P7S1, securing a further 0.2% of the stock, taking them to 50.7%. At the end of March the now sponsor-backed P7S1 began a formal process to buy SBS, already majority owned by KKR and Permira, which each hold a 37% stake.

The package, still in syndication as of mid June, has been well received by institutional funds in particular, and could well see some flexing of the less senior tranches before it is finalised. As launched to syndication it includes senior secured credit facilities totalling €2.176bn, a €500m second lien facility, and a €606.3m mezzanine facility that will finance the acquisition of P7S1. In addition the same bookrunners have underwritten €4.6bn of senior secured credit facilities to refinance debt at P7S1 and finance the potential acquisition of SBS Broadcasting by P7S1.

The €7.9bn package includes the assumption of €3.3bn of debt at holdco level and €4.6bn at the opco (P7S1) level. Holdco-level debt comprises a €300m eight-year revolver at 200bp over Euribor, a €938 eight-year term loan B loan at 250bp and a €938 nine-year term loan C loan at 287.5bp. There is also a €500m nine-and-a-half year second lien facility paying 425bp and a €606.3m 10-year mezzanine facility paying 8.25%. Opco debt comprises an up to €600m seven-year revolver paying 175bp, an up to €2bn seven-year B loan also paying 175bp and an up to €2bn eight-year C loan paying a 187.5bp.

Syndication of the P7S1 opco C loan will be done through a bookbuilding process, one of the latest trends in European leveraged finance, particularly for bigger deals with significant non-bank involvement. Investors are being asked to submit orders specifying the price level at which they wish to be allocated, based on an indicative price range of 99.75% to 100%. Holdco loans B and C, second lien and the mezzanine piece will be offered at par.

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