Setting the standard
Mechanical drives business Flender’s €1.3bn buyout financing was an ambitious deal coming at the beginning of 2021 when there was still a lot of uncertainty in the leveraged loan market over the Covid-19 pandemic. Its successful conclusion in January provided a huge injection of confidence for sponsors and lenders alike, and paved the way for a highly successful year for loan issuance.
The financing backing The Carlyle Group’s acquisition of Germany-headquartered Flender from Siemens comprised an ESG-linked term loan B split between a €965m tranche and an €80m-equivalent renminbi tranche that was privately placed. There was also a €150m revolving credit facility and a €125m guarantee facility.
Bank of America, Deutsche Bank and UniCredit were physical bookrunners, with BofA and Deutsche as sustainability arrangers on the euro TLB.
On the back of comprehensive marketing efforts, Flender achieved a highly attractive syndication outcome, and as well as being the first LBO to reopen the market in 2021, it was also the largest ESG-linked loan in the syndicated TLB market.
The deal included a 10bp ESG ratchet construct linked to the growth of wind turbine installations powered by Flender’s gearboxes. In addition, Flender pledged at least 50% of interest savings from the ratchet be contributed to a third-party charity with an ESG focus.
“It helped to define the ESG margin ratchet for future leveraged loans,” said Jeremy Selway, head of European leveraged finance capital markets at Deutsche.
There were concerns among investors over various issues related to wind energy, with Flender being the first leveraged loan issuer out of this sector. They included the wind energy growth outlook, which is heavily reliant on the regulatory framework of each country, as well as Carlyle’s ambitious cost savings programme.
These potential hurdles were dealt with quickly and successfully at the beginning of the marketing process. Following an extensive Q&A process, the deal achieved very high investor participation with more than four times oversubscription and with all the largest 50 loan investors participating in the deal – one of the highest, if not the highest, hit rates achieved on an LBO.
The €965m TLB priced at 375bp over Euribor, at par versus initial price talk of 375bp at 99.5–99.75 and, due to a broad syndication to high quality investors, the TLB has traded consistently above par since issuance.
On the back of its strong performance, the company returned to the market at the end of October 2021 to raise a €275m term loan B that backed a dividend recapitalisation.
"It was a great deal for Carlyle, especially with the ESG angle, and the divi recap capped it off," said Selway.
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