Bloomberg News

Sealed Air Leads $7.8 Billion in Buyout Loans on Surge in M&A

June 03, 2011

June 3 (Bloomberg) -- Sealed Air Corp., the food-packaging maker that’s buying Diversey Holdings Inc., received $3.8 billion in committed loans to fund the purchase as financing for mergers and acquisitions increases.

Ashland Inc., the maker of Valvoline motor oil, also said this week it’s seeking $3.65 billion in loans to back its buyout of chemicals manufacturer International Specialty Products Inc., bringing the amount of loans announced this week to fund takeovers to $7.8 billion.

Loans arranged last month to back mergers and acquisitions increased to 23.4 percent of all new loan deals, up from 9 percent in April, according to data compiled by Bloomberg, as companies seek to line up financing before deals fall off during the summer months.

“The pipeline of M&A deals continues to build,” said Darin Schmalz, a director at Fitch Ratings in Chicago. “M&A activity has been rather slow thus far in 2011 but based on the substantial M&A pipeline, one could expect a lot more M&A issuance to hit the loan market before the end of the summer.”

Ashland’s financing package will include a $1.7 billion term loan B, a $1.2 billion term loan A, and a $750 million line of credit, according to an investor presentation on the company’s website.

About $1.2 billion of the proceeds from the term loans will be used to refinance International Specialty’s existing debt, according to a June 1 report by rating company Moody’s Investors Service. Moody’s placed Ashland’s Ba1 corporate rating on review for a possible downgrade.

Price Drop

Citigroup Inc., Bank of America Corp., Bank of Nova Scotia and US Bancorp are providing the financing commitments, Covington, Kentucky-based Ashland said in a May 31 statement distributed by PR Newswire.

Leverage, or debt to earnings before interest, taxes, depreciation and amortization, will be 3.5 times at closing, according to the presentation.

A term loan B is sold mainly to non-bank lenders such as collateralized loan obligations, bank loan mutual funds and hedge funds. A term loan A is sold mainly to banks.

Loan prices fell 0.7 cent, or 0.73 percent, in May, the biggest drop since the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index fell 0.76 cent last June as indications emerged of weakness in the U.S. economy and sovereign-debt worries in Europe spooked investors.

Economists lowered their U.S. growth forecasts for the year, with a median estimate of 2.7 percent, compared with 3.2 percent three months ago, Bloomberg data show.

Greece Downgrade

Moody’s downgraded Greece’s local and foreign currency bond ratings to Caa1 from B1, putting the European country just four steps above the rating firm’s lowest designation, according to a June 1 report. The move came after policy makers considered asking investors to reinvest in new Greek debt when outstanding bonds mature.

The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, dropped 0.03 cent June 1 to 95.14 cents on the dollar, its lowest close since March 21.

Lender interest in the floating-rate asset class has grown at a record pace. Inflows into bank-loan funds totaled $2.2 billion in May, or $21.2 billion year-to-date, according to a JPMorgan Chase & Co. research report. Last year, $17.9 billion of cash flowed into loan funds.

Loan ‘Imbalance’

Federal Reserve Vice Chairman Janet Yellen said yesterday the Fed was monitoring the increasing demand for leveraged loans as a possible indication of an “imbalance” that could be curbed through regulation if necessary.

The central bank will “continue to watch conditions in the leveraged-loan market closely in the coming months, and we will speak out forcefully if we perceive pressures continuing to build,” Yellen said in a speech in Tokyo. “Strong demand has been pushing prices higher in the syndicated loan market” and “inflows into this asset class have indeed been robust and prices have been rising quite rapidly.”

On Feb. 14, the S&P/LSTA U.S. Leveraged Loan 100 Index closed at 96.48 cents on the dollar, the highest level since November 2007, and up from a low of 59.2 cents on Dec. 17, 2008, three months after Lehman Brothers Holdings Inc. collapsed.

Global mergers and acquisitions announced this year are up 21.5 percent from 2010 when they totaled $2.22 trillion, Bloomberg data show. The value of the 10,618 deals this year totals $1.02 trillion, compared with $839.8 billion in the same period in 2010.

Risk Appetite

Sealed Air outlined this morning $3.8 billion of financing committed by Citigroup Inc. and its affiliates to back its acquisition of Diversey Holdings.

The financing package will include a $750 million five-year term loan A, a $1.55 billion seven-year term loan B and a $1.5 billion one-year senior unsecured bridge loan, the Elmwood Park, New Jersey-based company said today in a regulatory filing.

Sealed Air, maker of Cryovac food packaging and Bubble Wrap, agreed to pay Diversey shareholders $2.1 billion in cash and 31.7 million shares of Sealed Air stock. The purchase also includes $1.4 billion of net debt to be refinanced, for a total cost of $4.3 billion.

“There is more appetite for risk in the marketplace,” said Fitch’s Schmalz. “Loan demand remains strong, supply remains limited but has improved lately. Investors are still in search for yield.”

--With assistance from Krista Giovacco in New York and Steve Matthews in Atlanta. Editors: Chapin Wright, Cecile Gutscher

To contact the reporter on this story: Richard Bravo in New York at

To contact the editor responsible for this story: Faris Khan at

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