Q1 2020
News
Direct lending news in brief
Selected stories from Debtwire
Creditflux and Debtwire report on the biggest stories in the world of direct lending. Breaking exclusives on funds, launches, strategies and hires make these must-have services for a market hungry for news. The stories here are just a small sample of what is on offer
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Funds’ flexibility flounders through their own facilities
As an industry, direct lending has grown on the premise of flexible, patient capital, with direct access to managers and a supportive approach. But many private debt funds who are themselves levered are finding their ability to offer flexibility hampered by the terms of their facilities. Issues such as interest capitalisation and covenant holidays for their portfolio companies are putting them at risk of default, sources told Debtwire.
The contracts are bespoke and include different trigger points and assessments. For these reasons, funds are scrutinising their facility documentation to ensure they are not caught off guard.
Many direct lenders are avoiding the conversation for fear of triggering a revaluation of their portfolio. This could in turn prompt a margin call – calling for a repayment on some of the loan or the sale of assets. But many managers’ own leveraged lenders are being proactive, reaching out to GPs before a problem is apparent, said one of the sources. So far, the consensus is that facility providers have been supportive.
EQT cleans up with Schülke acquisition
EQT Partners has taken a c. €350 million unitranche facility from HPS to finance its pre-emptive acquisition of Schülke, a German hygienic products manufacturer, sources told Debtwire. HPS has underwritten the whole facility, which is priced at a Euribor+ 650bps-675bps, excluding floor and fees.
Leverage is 4.5x, the sources said, implying a total debt quantum of around €350 million based on a structuring EBITDA of €77 million.
Karro Foods owner hungry for a €200 million add-on
The Eight Fifty Food Group, the umbrella company for UK seafood company Young’s Seafood and UK pork producer Karro Foods, is looking for debt providers to fund a €200 million add-on to its £304 million TLB. Sponsor CapVest is handling the debt raise itself, going broadly to secure the capital to fund an acquisition of a German seafood group, sources told Debtwire.
Following a hung syndication in 2019 backing CapVest’s acquisition of Young’s and merger with portfolio company Karro Foods that left Barclays, RBC and Goldman Sachs long in the deal, Pemberton, Pimco and Lodbrok Capital came in providing the £304 million TLB. The loan pays Euribor+ 600bps.
The senior add-on debt would price above the existing facility. Discussions are still underway, but price talk is expected at a 10% minimum for margins. The add-on would take net leverage to around 4.4x, taking into account the EBITDA boost from the new acquisition.
French sponsors looking for an escape route
Some French sponsors that entered exclusive negotiations to acquire companies in the early stages of Europe’s coronavirus outbreak are looking for a way out.
Due to the scarcity of material adverse change (MAC) clauses in the documentation and the difficulty of enforcing them in France, some sponsors have asked lenders to decline the financing, in order to have a good reason to back away, sources say. They are also looking to include COVID-19 clauses in future deals.
But whether lenders would agree to decline the financing is uncertain. Withdrawing from a transaction could entail reputational damage, given
that the vendor may also be a potential client of the lender.
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European Direct Lending Perspectives
Q1 2020
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