Dec 8 Europe's leveraged loan market has seen a flurry of deals launch for syndication in a pre-Christmas rush that offers investors real pricing differentiation, with assets priced to sell depending on credit quality, banking sources said. Around ten deals are in syndication, as bankers seek to tie up event-driven and opportunistic financings in the run-up to year-end in order to avoid carrying risk into the next year."The first week of December is the last time really to launch a deal if it is to get done before Christmas," a senior leveraged loan banker said. The deals were launched with very different pricing, in an unusual move for Europe's leveraged market, which has traditionally adopted a wholesale pricing model depending on demand and supply technicals and macroeconomic conditions. The pricing differentiation is different to what the loan market experienced over the summer, when credits launched with similar terms but priced differently at closing, flexing up or down depending on how they were received in syndication."The market is getting a bit more mature and there is an increased realisation that not all risk should be priced the same," a second loan banker said. Banks have been more vigilant to price risk in the run-up to year-end after some deals struggled in syndication post summer, including British outdoor clothing chain Fat Face and Belgian aluminium systems manufacturer Corialis. Arrangers have considered a number of variables when pricing the most current deals in the market, including credit quality, currency, sector, country and rating.
Pricing differentiation, which is an acknowledgement of risk from sponsors and arranging banks, could tempt some investors to commit to more hairy credits if they are being fairly compensated, rather than just cherry-picking the best deals."Pricing differentiation is a good thing rather than a one-size-fits-all approach. Sponsors have to build in more realistic assumptions on where they can get deals cleared," a loan investor said. QUICK SELL
Based on margins, OIDs and Libor/Euribor floors (or three-month Euribor/Libor when no floor exists), telecoms masts group TDF's 150 million euro ($184.14 million) term loan on its German subsidiary Media Broadcast is priced the highest in the market at 700bp. The deal, which refinances debt and facilitates a sale of its French unit, has been priced generously to sell quickly with a 550bp margin, 98 OID and one percent floor. A 150 million euro add-on facility for diversified consumer products company Spectrum Brands is the tightest with an all-in price of 387.5bp that comprises a 300bp margin, 75bp floor and 99.5 OID."Spectrum is a Double B credit and is a massive multi-billion dollar company so people are more confident it is robust and not going away, which is why it is priced tightly," a third loan banker said. UK restaurant chain Prezzo's sterling term loan is priced at 680bp, paying up for sterling and the sector, which is exposed to discretionary consumer spending. Southern European car rental company Goldcar has an all-in price of 575bp, but may need to price even wider as it is Spanish and a cyclical business.
The pricing on a 745 million euro covenant-lite term loan denominated in euros and dollars that backs EQT's buyout of Siemens Audiology Solutions is 587.5bp. Pricing has been pushed wider on the euro portion for a credit of this quality because the US market has widened."Pricing in the US has changed a lot and gone wider - this has dragged out pricing on Siemens, which is overly generous on the euro portion and should now be a blowout," a fourth loan banker said. A 760 million pound-equivalent ($1.19 billion) dual-currency term loan backing Turkey's largest food group Yildiz Holding's acquisition of UK-based snacks maker United Biscuits is priced at 483bp on the euro piece and 580bp on the sterling portion, to target CLO investors. A dual-currency dividend recapitalisation for UK second-hand vehicles seller British Car Auctions is priced wider than United Biscuits at 495.5bp on the euros and 592.5bp on the sterling, as owner Clayton Dubilier & Rice pays up slightly for doing an opportunistic deal."Some deals have priced a lot wider because of the credit quality perception, such as TDF. Some deals have priced tightly as they play to the European CLO market, such as United Biscuits. Some deals arrangers have needed to make attractive compared with other deals in the market, such as Goldcar," the third loan banker said. Depending on the outcome of these deals, pricing differentiation may continue into next year when a new batch of deals in the pipeline launches for syndication including Swiss packaging group SIG Combibloc, online gaming firm Sky Bet, Dutch software company Exact and telecoms business Portugal Telecom."There is not enough direction and confidence in the market. January's pricing depends on the results of these deals in the market. If they clear strongly there will be pressure to price aggressively. If they wobble, pricing will be wider in January," the third banker said. ($1 = 0.8146 euros) ($1 = 0.6399 pounds)