The TDR Capital-led consortium’s acquisition of the Dutch vehicle leasing company took a long time to come together, with underwriters having pre-marketed some select investors in March 2015 – a full year before the deal eventually cleared.
LeasePlan’s investment-grade operating company has a banking licence and frequently raises debt in the senior unsecured and ABS markets. The only way for buyers to leverage up the business without upsetting this was to raise holding company debt.
Luke Gillam, co-head of leveraged finance capital markets in EMEA at Goldman Sachs, said that the structuring took a “large amount of work” to get both regulators and investors comfortable.
“The investment-grade rating at the opco could not be threatened, as cost of capital is all-important to lease companies,” he said. “So the new debt could not impact the ring-fenced entity, and had to be reliant on dividend distributions from the regulated group.”
And shortly after the acquisition agreement was signed in July 2015, a hand grenade was thrown into the middle of the process in the form of Volkswagen’s emission scandal. Volkswagen owned 50% of LeasePlan prior to the sale, meaning the underwriters had the added challenge of getting the market comfortable around residual value risk on vehicles affected by September’s revelations of foul play.
By the time the deal got the all-important approval from the ECB on February 1 2016, global credit markets were undergoing a period of extreme volatility.
Underwriters wasted no time and launched the €1.55bn-equivalent trade the next day. But by the time they looked to price the deal the following week, concerns over Deutsche Bank’s ability to pay AT1 coupons had sparked a sell-off across subordinated financial paper.
“We had a book there and could’ve priced a deal at a level, but when the market’s in freefall it’s not in any one’s interest to print it,” said Michael Marsh, head of EMEA leveraged finance at Goldman.
When the leads initially pulled the deal it was not clear when the bank sub-debt market would recover, besides which pulled deals have a history of having to come back wider on their return.
But with the market quickly rebounding, the deal was launched just a month after it was shelved, with its second bookbuild given the added boost of the ECB announcing its corporate bond purchase programme on the day of pricing.
The deal’s largest tranche – a €1.25bn five-year piece – was priced at just a 6.875% yield, almost 100bp tighter than the 7.50%–7.75% price talk set a month earlier.
Bookrunners were JP Morgan, Goldman Sachs, Credit Suisse and ING.