Timing is everything
In a year beset by volatility, banks on the financing of KKR's purchase of a majority stake in Dutch bottling company Refresco gave the market a master class in finding a window. Goldman Sachs, JP Morgan and KKR underwrote the €3.4bn-equivalent financing on February 22, just 48 hours before Russia invaded Ukraine.
The three banks were quickly able to get a large number of sub-underwriters into the deal via both the term loan B and revolving credit facility, but the deal still had to get syndicated into the broader market.
In the uncertainty and panic after the invasion, liquidity had all but dried up in the leveraged loan market, leaving banks sitting on billions in euros of underwritten debt. But coming up to the Easter holidays, a stabilising market gave the Refresco underwriters a small window to syndicate the debt.
"We saw the market and where things were trending, but saw a clear window coming into the Easter break," said Mark Danzey, partner at KKR Capital Markets. "We had a good sense of where total liquidity was in Europe, and could see that it was getting constrained, and so got into the market quickly."
Banks launched a seven-year first-lien term loan on April 22, split between a €1.53bn tranche, a €1.53bn-equivalent US dollar-denominated tranche and a €340m-equivalent sterling-denominated tranche.
The three currencies allowed banks to drive tension between markets in the US and Europe in order to build demand. Still, as banks went through the marketing process market conditions deteriorated. Lead banks responded by accelerating the timetable and managed to tighten pricing on both the euro and US dollar tranches.
"We got people through in a pretty quick manner and built back the OID to 99," said Danzey.
The euro tranche priced at 425bp over Euribor, from 450bp, with a 0% floor, while the US dollar loan landed at the tight end of price talk of 425bp–450bp over SOFR with a 0.5% floor. The OIDs on both tranches priced at 99, from 98–98.5 at launch.
The sterling portion priced at 525bp over Sonia with a 0% floor and an OID of 98.
"We ultimately had a view that we were backing a good sponsor and that people were not going to step away from the transaction," said Dominic Ashcroft, co-head of EMEA leveraged capital markets at Goldman. "We got in and out of the market in time."
As the TLB was underwritten in a period of already heightened tensions between Russia and Ukraine, indicated levels and flex were already wider than those seen earlier in the year, and banks ended up making full fees.
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