12 de febrero de 2016 / 18:03 / en 2 años

LeasePlan brings spectre of hung LBOs back to Europe

LONDON, Feb 12 (IFR) - LeasePlan's shock decision to pull a 1.55bn-equivalent LBO bond has made the prospect of hung bridges very real in Europe, although banks are not yet burdened with a massive backlog of stuck paper akin to that in the US high-yield market.

Bankers at several of the deal's underwriters told IFR that they yanked the holding company bond from the market even though they had a covered order book, as the yields investors demanded were unacceptable to the consortium buying the Dutch vehicle-leasing firm.

Sources described it as one of the biggest pulled LBO bonds ever in Europe, but bankers and investors alike stressed that the deal's failure had little to do with the quality of the business and everything to do with the savage sell-off in financial debt.

"It's like putting a meal in front of someone who has stomach flu," said a high-yield portfolio manager. "Even if it were prepared by a Michelin-starred chef, your appetite would be lacking."

LeasePlan's deal was especially sensitive to this week's extreme volatility, as it is a holdco bond that sits above an operating company with a banking licence.

The Additional Tier 1 market has suffered its worst sell-off since opening in 2013 and both the iTraxx Crossover and Sub Financials indices blew out to multi-year wides yesterday, when the deal the was set to price.

One banker on the deal described it as "literally the worst conceivable day" for the company to issue high-yield debt.

"NOT VERITAS"

He argued the situation was "diametrically opposite" to the US$5.5bn hung LBO bridge for Veritas, which banks failed to publicly sell in November.

While the tech company's deal had a large Triple C unsecured component - which many investors were unwilling to buy at any price - LeasePlan's deal is senior secured with stronger (BB+/B1/BB-) ratings.

The US market also has a multi-billion dollar backlog of unsold high-yield bonds and leveraged loans, while bankers said there are only a handful of small backstopped deals in Europe.

"There's just not that much out there. Sure, N&W Vending could be difficult, but it's a tiny deal with lots of banks on it," said a banker away from LeasePlan's deal.

A group of banks led by Goldman Sachs has underwritten a roughly 400m senior secured bond backing the acquisition of N&W Vending. While small, the deal will leave the Italian company with nearly five times leverage, sources said.

The first banker also said he believed that all of the underwritten high-yield bonds outstanding in Europe are senior secured. While a pending LBO deal for Italy's TeamSystem has unsecured paper, it has already been privately placed, so will not need to be sold into a difficult market.

"That's another huge contrast to the US," he said.

A second banker on the LeasePlan transaction also said that, in another contrast, the "massive overhang" of risky deals in the US could mean that banks are ignoring the companies' best interests.

"The mentality over there is 'Okay, let's just find any price and shift it, so we can move on to the next US$70bn'. Because this in contrast is a very strong credit, we don't have the need to jam the market and stick the issuer with an unfair price."

BOLD CALL?

The first banker said that on Wednesday underwriters had a covered book in line with formal price talk with "big investors placing triple-digit orders".

A euro five-year non-call two was talked at 7.50%-8%, a seven-year non-call three at 8%-8.25% and a US dollar five-year non-call two at 8.25% area.

"But with a terrible Thursday, people pulled orders and backed up their levels. The talk was already wider than where the issuer had expected, however," he said.

A second high-yield investor said he was "disappointed" the deal had not printed as it would have offered attractive yields for a strong business.

"It may be financial, but it's so much clearer and simpler to analyse than a bank," he said.

Several market sources noted that while the market price was unacceptable to the issuer, it is incredibly rare for pulled deals to price at tighter levels when relaunched.

"Although it sounds bold, I think this at least has a chance to buck the trend," said the first banker.

"Most pulled deals have a lot of taint, whereas people understand exactly why this happened. And secondly, it already got pushed far wider than where people thought fair value stood." (Reporting by Robert Smith)

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