PagesJaunes SA (PAJ), the French phone directory publisher controlled by Kohlberg Kravis Roberts & Co., received orders worth about 15 billion euros ($19 billion) for a sale of 3.9 billion euros of high-yield loans.
The demand prompted Paris-based PagesJaunes to cut the interest it will pay on part of the deal to 425 basis points more than the euro interbank offered rate, a benchmark for borrowing, from an initial 500 basis points, according to bankers arranging the loans. Investors have until Feb. 12 to place orders.
``All the yellow pages have performed incredibly well in general, and this should trade up in the secondary market,'' said Zak Summerscale, who oversees 5 billion euros of assets at Babson Capital in London and placed an order for the loans. The lower interest rate shouldn't reduce demand, he said.
Investors are buying up loans to put into collateralized loan obligations, securities that pool high-yield, high-risk loans and use their income to pay investors, according to Standard & Poor's. Banks and money managers created a record 31 billion euros of CLOs in Europe last year, more than triple the amount in 2005, S&P data show.
New York-based KKR is borrowing to pay for the 55 percent stake in PagesJaunes that it bought in December. Leveraged buyout firms use a little of their own cash and borrow the rest, piling the debt on the company being acquired.
Demand was strongest for PagesJaunes' second-lien loan, which ranks behind senior debt and pays higher yields, the bankers said. The margin was cut to 425 basis points from 500 basis points, and the size increased to 370 million euros from 165 million euros.
The so-called B and C tranches that are sold to fund managers were also increased, to 389 million euros from 334 million euros. By contrast, the mezzanine piece was reduced to 209 million euros from 524 million euros. Mezzanine debt is the lowest-ranking type of loan; holders are paid after senior and second-lien creditors in a default.
The company has also added a penalty that will deter it from refinancing the second-lien note early. The note is not callable for the first year; after the first year, PagesJaunes can only redeem the debt at 102 percent of face value, bankers said.
Companies such as phone-directory providers are able to borrow more because investors are reassured by their predictable income and low spending levels, Summerscale said.
PagesJaunes's debt will exceed its cash flow by about 9 times. That's the same amount of debt KKR piled on another of its companies, Dutch magazine publisher VNU NV, when it sold bonds in August. It was the most debt for any leveraged buyout in Europe, Fitch Ratings said.
Three-month Euribor, an average of rates set daily by banks and used as a borrowing benchmark, is 3.79 percent. A basis point is 0.01 percentage point.
Bank of America Corp. (BAC:US), Calyon SA, Deutsche Bank AG (DBK), Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., JPMorgan Chase & Co. (JPM:US) and Mizuho Financial Group Inc. (8411) are arranging the loan.
Table of PagesJaunes Loan Changes:
Class New Margin Old Margin Term Loan B E388.8 mln 225 bps 275 bps Term Loan C E388.8 mln 275 bps 325 bps Second Lien E370.5 mln 425 bps 500 bps
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