Rlpc first covenant lite leveraged loans to hit europe

← Homepage

Nov 4 The first pure European covenant-lite deal could hit Europe's leveraged loan market before the end of the year, fuelled by a lack of M&A and a surplus of liquidity which investors are eager to put to work. A number of bankers are working on covenant-lite loan packages for about four or five potential buyout deals in auction phase, including financial news provider MergerMarket, as some sponsors demand less restrictive financing options."Market conditions are very strong and there is a lot of liquidity. If there is a well-known business which is liked by institutional investors it could get a deal done on a full European covenant-lite basis. Covenant-lite should be on everyone's list to investigate," Neil Thomson, founding partner of debt advisory firm Tomorrow Partners, said. Although covenant-lite is a common feature of the US market, it has been mainly shunned by a more conservative European market as bankers and investors clung to a vast array of financial and maintenance protections. European bankers and investors have been increasingly exposed to covenant-lite financings with the emergence of a greater number of cross-border transactions and euro carve-outs of large dollar financings on deals, including German ceramics company CeramTec and global IT operations management software provider BMC Software.

With the European market becoming more used to covenant-lite, it is only a matter of time before it sees its first pure covenant-lite deal."The market has been changing over the past 12-18 months. For a decent business it is not as apparent how useful covenants are. European covenant-lite was close to heresy but now it is becoming much more widely acceptable," a head of loans distribution said.

DEAL SPECIFIC The impetus for a pure European covenant-lite deal is growing but it will only work for the right deal. A 340 million pounds-equivalent ($541.33 million) financing backing Carlyle's buyout of UK-headquartered packaging company Chesapeake was launched over the summer and initially attempted to secure a covenant-lite package, but investor pushback led to the inclusion of one leveraged covenant making the deal covenant-loose.

A covenant-loose deal includes some covenants but typically sees the removal of fixed charge and free cashflow covenants. If the covenant-lite financing packages proposed on some deals in auction phase do materialise, bankers will make sure there is enough flex language to cover themselves against possible backlash."There could be flex language in the documents in order to protect underwriters during syndication. The deal may not finish up completely covenant-lite," Thomson said. In order for covenant-lite to work, investors are looking for a well-known leveraged credit that has performed well and has a track record of deleveraging. The loan needs to be big enough so it is liquid if investors want to exit quickly on the secondary markets, but not so big that it requires a dollar portion. With a number of credit funds and new CLOs having been raised this year; repayments to the loan market as loans refinanced via the bond market; and a lack of M&A, one banker said the market had created a "perfect storm" for a pure European covenant-lite deal. ($1 = 0.6281 British pounds)

Are you looking for "şark köşesi"? Check out ottomanstyle The passionate experts in this field are ready to answer all of your requests.