Strong demand enabled it to become the most tightly priced deal in the European leveraged loan market in 2016.
“This is the trend-setter that others followed. It caused the market to wake up on how buoyant and well-capitalised the loan market is,” said Dominic Ashcroft, co-head of leveraged finance capital markets, EMEA, at Goldman Sachs.
Froneri brought together two highly complementary players, PAI-owned R&R Ice Cream and Swiss food giant Nestle, but banks had a job selling what was in essence a first-time issuer to the loan market. Although there was some halo effect from Nestle, there was no guaranteeing investor support and it was much more credit-focused.
Citigroup, Credit Suisse, Deutsche Bank and Goldman Sachs were joint mandated lead arrangers on the financing, split between a €800m seven-year covenant-lite Term Loan B and a €220m six-year revolver. The deal, alongside a €800m Nestle shareholder loan, was used to repay R&R’s existing high-yield bonds, equalisation payments to the JV parties and fees and expenses.
“The credit was the selling point here,” said Ashcroft. “It was a sector which people knew and understood – the bond had worked well and people liked that R&R had a track record.”
At launch, the €800m TLB was guided at 350bp over Euribor with a 0% floor and a 99.5 OID. It was not clear from the start how strong demand would be from certain pockets of liquidity. Banks do not usually like investing in covenant-lite term loans and although there were some bank and shareholder relationships at play, they were not the driving force, with more banks entering the deal than initially expected.
There was also a large number of managed accounts wanting to invest in the deal. With so much liquidity at play, the banks were able to leverage the high demand to tighten pricing, despite a number of CLOs dropping out.
Pricing was finalised at 300bp over Euribor at par, and prior to close banks carved out a €150m-equivalent Australian dollar-denominated tranche that paid 375bp with a 1% floor, to match cashflows. The euro TLB was resized to €650m as a result.
More than 170 accounts looked at the deal across Europe, the US and Asia. In total, some 86 entities invested in it, which comprised a split of 30% banks, 55% funds and 15% CLOs, according to Goldman Sachs.
“The deal is encouraging for other corporate borrowers to team up with sponsors and tap the leveraged loan market,” said Charles Bennett, managing director at Credit Suisse.