Banks have started marketing a €4.7 billion-equivalent loan package to support Bain Capital's move for a controlling stake in Volkswagen's heavy diesel-engine unit. Bain in June agreed to buy 51% of Everllence, a transaction expected to bring in about €7.4 billion for Volkswagen. The sale lines up with VW's broader restructuring to lift profitability as it contends with a worsening slump in China, its most important market. Private equity firms have been gravitating toward industrial assets this year as they look for calmer waters than the software names they used to favor.
Large leveraged loans tell you how much risk banks are willing to underwrite. Market Briefs covers the debt markets free every morning.
The financing is split down the middle: €2.35 billion in euro loans and €2.35 billion in dollar loans. Early pricing talk pegs margins at 3.5 and 3.75 percentage points over the respective benchmarks, with both tranches offered at 99.5% of face value. Investors have until Oct. 13 to submit orders, and Barclays Plc and Goldman Sachs Group Inc. are among the physical bookrunners.
The timing fits a burst of LBO funding landing in markets even as global borrowing costs climb. Bloomberg data show that, by dollars raised, acquisitions or buyouts represented one-third of US leveraged-loan launches in September. Also on Monday, arrangers started a $1.05 billion loan to help finance buying a controlling interest in Flow Control Holdings.
Moody's Ratings assigned the offering a B1 grade, which sits four steps below investment grade. In a Monday note, the agency projected Everllence's leverage would be 6.4 times an earnings metric at closing, and warned that higher financing costs are "providing limited headroom for operational underperformance."
Big picture, more private equity owned industrials are tapping loan markets with below investment grade labels and modest discounts. If you are watching credit funds or loan ETFs in your mix, expect portfolios to keep picking up exposure to these cyclical, sponsor-backed deals as issuance stays busy.
Financing terms on deals like this set the tone for the next ones. Get the free Market Briefs daily newsletter and follow the pipeline.
