Normec mixes bitter and sweet
Netherlands-headquartered Normec has served up a combination of increasingly popular products among issuers in the broadly syndicated loan market this year, albeit CLO managers have mixed feelings over some of the recipe.
Normec (B2/B) launched a €665m loan that will be used to refinance a unitranche. The seven-year facility is split into a €565m term loan B and a €100m delayed draw TLB fungible with the TLB, once drawn, and sold as a pro rata strip. It is offered at 425bp over Euribor with 0% floor and a 99.5 OID and comes with 101 soft call protection for six months.
DDTLs are more common in the US but have started to appear on Europe's shores, with Swedish civil engineering firm Eleda already placing one in February. But CLOs can prove an awkward buyer base for the facilities.
"Everyone hates them," said a leveraged finance banker. "You ask somebody if they want a DDTL by choice, then they will all say no. But ask them if they want to be involved in the deal, then they have to respond to that."
Even with ticking fees, the facilities can be awkward for CLOs to handle.
"We don’t like delayed draw term loans from an economic perspective, because as a CLO manager you need to run a pretty fully funded portfolio," said John Murphy, head of syndicated debt at Bridgepoint. "Having a cash pot in reserve in case of draws is a pretty inefficient form of generating returns, so these facilities get a lot of pushback."
Normec's loan comes after Eleda split its covenant-lite seven-year loan into a €765m TLB and a €153m delayed draw TLB. For Eleda, there were some documentation changes, and pricing was firmed at 450bp over Euribor, from guidance of 425bp–450bp, with a 0% floor and a 99 OID.
"A bank might propose to do something like front the funding to make it easier for CLOs to participate," said Murphy. "But if they do that then the CLOs won’t benefit from the economics – CLOs get the ticking fees, but once it is drawn then the return will go back to the bank that funded it until the CLO can settle. It is all inefficient and it would be easier for the bank to just provide the undrawn facility."
One CLO manager said he could get on board with a DDTL, but within limits.
"It depends on how long it will be until it gets drawn," he said. "If it is two years, then no way. If it is 45 or 60 days then it can be okay – but we wouldn't do it as more than 15% of the deal size."
The number of issuers looking to place DDTLs will remain contained, in the view of a third banker.
"Not every business needs it," he said. "If you are aiming to use it in the first six months then it makes sense, but otherwise it is getting flexibility which is expensive and that you don't need."
Public takedown
Normec will refinance €580m of existing debt with the exercise, while also placing a new senior secured RCF of €120m. HSBC and JP Morgan are joint physical bookrunners.
It followed German cloud-based HR software company Personal & Informatik (B3/B), which allocated a €455m TLB that will be used to refinance a private loan and fund a dividend distribution, a portion of which will be financed with new incremental PIK notes.
P&I's covenant-lite five-year loan priced at 425bp over Euribor, from 425bp–450bp guidance, with a 0% floor. The loan sold at par, tightened from a 99.5 OID offered at launch. It carries 101 soft call protection for six months. Goldman Sachs is sole physical bookrunner.
"There is a clear shift away from utilising the broader private credit market as these deals come out of the non-call period – it makes absolute sense for those borrowers who can access the broadly syndicated loans market to utilise it," said Murphy. "There are a few situations out there but they will get cleaned up pretty quickly, so it is a finite amount of names."
Northern European IT-services provider Advania and Dutch pharmaceutical company Norgine are also in the pipeline.
"The trend is increasing seeing how strong liquidity is," said the first banker. "It's a good opportunity for sponsors to improve the cost of capital in a meaningful way. You're really only looking at the last two years for unitranches that could be refinanced, as before it was mid-market deals for companies too small for the syndicated market – we should have been through all the obvious candidates by the second half of the year."
Normec, founded in 2016, is a provider of testing, inspection, and certification services.
S&P forecasts adjusted debt to Ebitda for Normec will be 6.6 times at the end of 2024 before falling towards six times in 2025.
Astorg, in partnership with management, acquired a majority stake in Normec in 2020 from Summit Partners. Normec sits in the Astorg VII fund. Secondaries Investor reported in February that Astorg was looking to move Normec into a separate continuation fund worth at least €1bn.