Onwards and upwards
ThyssenKrupp Elevator's €5.5bn-equivalent loan formed part of a wider €10.3bn loan and bond financing that made up one of the largest leveraged buyouts in a decade. It was underwritten before Covid-19 disrupted markets and put sell downs and new issuance on hold.
Sponsors Advent, Cinven and RAG Foundation agreed a €17.2bn acquisition of ThyssenKrupp's elevators division in February. That meant banks had committed to the aggressive terms when the market was still quite bullish and before yields rocketed following the global spread of Covid-19.
“When TKE was underwritten it was a significant, huge and bold deal. As one of the biggest since the last financial crisis, it was extraordinary by any measure,” said Tim Cottrell, RBC’s European head of loans syndication.
When the leveraged loan market reopened in May, TKE’s Single B rated jumbo cast a large shadow over the six underwriters -- Goldman Sachs, UBS, Barclays, Credit Suisse, Deutsche Bank and RBC.
The underwriters were looking to assume a collective €2bn loss, given where secondary prices had plummeted to and with no existing investor base, the market feared any new issuance in meaningful size would be held off until TKE sold.
“As the market showed its first tentative recovery, TKE was looming overhead. Every conversation about any deal in the future and any pricing was predicated with reference to TKE. TKE combined was the 800-pound gorilla, the elephant in the room and the Sword of Damocles,” Cottrell said.
The jumbo deal was launched with caution in June and the funded euro and dollar-denominated loan reduced to approximately €3.05bn-equivalent in size from its €5.5bn underwrite, but wrapped up ahead of deadline on June 30 at a slightly higher €3.5bn-equivalent. TKE also raised an unprecedented amount of unfunded loans totalling €2bn.
The sell-down strategy saw the deal syndicated widely to a global investor base and bumper orders enabled arrangers to optimise the capital structure, tighten pricing and stay within the flex to make full fees, allaying any fears over selling such a large deal during the pandemic.
“It was very much a global syndication where the momentum came from large global investors wanting to play across the piece. It was a massive order book in the end,” said Luke Gillam, Goldman’s co-head EMEA leverage capital market.
In acting quickly to adjust the structure, the banks pulled in more than €25bn in orders and gave confidence that the loan market was truly open to new business, allowing for the flow of issuance thereafter.
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