Breaking new ground
In a year that saw Europe’s leveraged loan market largely shut down, bankers had to be creative in order to find liquidity. In June, pharmaceutical company Norgine’s €715m buyout financing became the first underwritten deal to primarily target a direct lender syndication.
The deal was designed to overcome the challenges of placing a sizeable deal during ongoing market turmoil and is a reflection of how direct lenders had become the only game in town to fund large buyouts since Russia’s invasion of Ukraine in February.
In order to get funding together quickly to back its purchase of a majority stake in Norgine, sponsor Goldman Sachs Asset Management first chose two banks – Goldman Sachs and Jefferies – to underwrite the transaction, rather than going straight to direct lenders which tend to take a long time over due diligence when forming a club financing.
“It was done that way as a consequence of necessity,” said Mark Danzey, a partner at KKR Capital Markets, which was later brought in to lead the syndication alongside Goldman and Jefferies. “The sponsor was trying to move quickly and quietly.”
The leads wasted no time gauging direct lenders’ interest and carefully tailored terms in order to clear potential hurdles at the beginning of the syndication process. The underwritten debt included maintenance covenants, which would allow lenders to keep the borrower’s leverage ratio in check; as well as a relatively high margin and a longer-than-typical call protection period.
Those terms were generally tighter than the traditional term loan B market which is heavily reliant on CLO funds as loan buyers.
“It was first deal of its kind to do that,” said Danzey. “It's a different corner of the market.”
The deal received a positive response, and the leads allocated the financing within eight weeks from the underwrite. The transaction included a €650m seven-year first-lien term loan and a €65m revolving credit facility. The term loan, which was taken down by a group of direct lenders, priced at 625bp over Euribor, with a 0% floor and 96.5 OID.
The execution is expected to be replicated in the future, as it provides a chance for direct lenders to invest in larger companies.
“There might be a subset of the market where people will only want to directly originate their own deals, but the majority of private capital is more than happy to do syndicated deals,” said Dominic Ashcroft, co-head of EMEA leveraged capital markets at Goldman Sachs.
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