Private equity firm Japan Industrial Partners is considering a dividend recapitalisation of the ¥1.84trn (US$12bn) financing that backed its leveraged buyout of Toshiba, weeks after closing following a drawn-out syndication.
The move comes on the back of a sharp rebound in Toshiba’s financial performance, prompting JIP to explore refinancing of Asia’s largest LBO loan with the aim of wrapping it up before the end of the financial year on March 31.
That timeline stands in stark contrast to the outcome of the ¥1.4trn senior portion of the original financing that crawled through syndication for two years. A common feature of both deals, however, will be the limited involvement of international lenders.
“Some sponsors or companies are still reluctant to include foreign banks in syndication,” one banker said.
This was evident at the end of September when syndication of the senior loan for JIP’s LBO of Toshiba finally closed with 17 lenders joining, comprising 10 Japanese regional banks, four insurers and three international banks. The five mandated lead arrangers – Sumitomo Mitsui Banking Corp, Mizuho Bank, Sumitomo Mitsui Trust Bank, MUFG and Aozora Bank – sold down around ¥300bn of the senior loan in syndication.
Only a limited number of Toshiba’s lenders were invited to participate in the latest round of syndication compared with close to 100 prospective lenders that had been targeted in the first round launched in early 2024.
“The underwriters were no longer in need to sell down as much as they originally planned,” said a banker familiar with the situation. “Toshiba wanted to keep the lender formation small and limit it to the existing lenders.”
International banks began returning to Japan’s LBO market a few years ago as financing terms improved and Japanese arrangers became more conscious of concentration risks. However, opportunities for foreign lenders in Japan’s leveraged finance market have been few and far between.
The last time a Japanese LBO financing drew a decent number of international banks was in September 2024 for a five-year loan of around ¥300bn backing Apollo Global Management’s LBO of Panasonic Automotive Systems. That borrowing attracted nine international banks.
The ¥1.4trn loan backing Toshiba’s LBO also drew strong interest from several international lenders. However, only three, whose identities could not be confirmed, were included in the deal.
While arrangers have generally been more eager to broaden the investor base for LBO loans amid a recent boom in activity in Japan, some bankers note that few deals actually lead to full syndication.
“Recently, MLA groups have expanded, but in many cases, the deals ended up being clubbed without progressing to general syndication,” said another banker. “Rather than bringing in numerous small lenders, it is often preferable to stick with those we already have established relationships with.”
Loan bankers in Japan also had a bitter experience with KKR-owned auto parts maker Marelli, which entered court-led rehabilitation proceedings in 2022 and resulted in a ¥450bn haircut on roughly ¥1.1trn of debt raised from 26 domestic and international lenders.
Some bankers pointed out that a large syndicate of lenders can prove counterproductive and slow decision-making, especially when borrowers face financial difficulties.
Comeback kid
Toshiba’s turnaround this year should bode well for the dividend recap. The company posted robust results for the quarter to June 30, with operating profit tripling year on year to ¥40.1bn. Net profit surged nearly fourfold to ¥146.9bn, driven by strong performance in its energy, defence, HDD and elevator businesses, as well as gains from asset sales and improved profitability at Kioxia Holdings.
In 2024, the Japanese electronics and machinery maker’s weak financial performance was the main factor behind the slow pace of the ¥1.4trn financing, which had initially been targeted for completion by March that year. Syndication was suspended that month amid concerns over Toshiba’s earnings trajectory.
Japanese ratings agency R&I upgraded Toshiba's rating to BBB from BBB− on October 24, which places the company in a stronger position to pursue the dividend recap. S&P rates Toshiba at B+.
Sources said nearly half the ¥1.4trn senior loan has already been repaid. That financing comprised a ¥300bn amortising portion, a ¥900bn bullet piece and a ¥200bn commitment line paying margins of over 300bp, 350bp and 300bp over Tibor, respectively.
Some 20 Japanese companies invested alongside JIP in the LBO, including chipmaker Rohm, utility Chubu Electric Power and financial services firm Orix. Additionally, domestic financial institutions and corporates provided ¥235.5bn in mezzanine debt and ¥200bn through preferred stock to back the LBO.
Toshiba ended its 74-year history as a listed company in December 2023 following a ¥2trn tender offer that closed in September that year.