Bloomberg News

Jimmy Choo, O2 Arena Snub Banks in Buyout Loans Targeting Funds

June 20, 2011

June 20 (Bloomberg) -- Celebrity shoe designer Jimmy Choo and London’s O2 arena are raising longer-term loans that don’t start paying back until maturity, the kind of structures favored by non-bank lenders.

The portion of European loans set up to attract funds rose to 81 percent, or 22 billion euros ($31 billion) of total term borrowings in Europe this year, compared with 72 percent in 2010, according to data compiled by Bloomberg, while the amount of amortizing loans distributed to banks has fallen.

Demand from investors including collateralized loan obligations, bank loan mutual funds and hedge funds is fueling a five-fold surge in deals to back private-equity led buyouts in Europe this year to $16 billion. KKR & Co., CVC Capital Partners, JC Flowers & Co. and Clayton Dubilier & Rice LLC are seeking to raise more than 3.5 billion euros for acquisitions in Europe, Bloomberg data show.

“Loan institutional demand should remain strong over the next few months, allowing issuers to further reduce the amortizing portion of their capital structure,” said Patrice Maffre, co-head of EMEA acquisition and leverage finance at Nomura Holdings Inc. in London.

Repayments

Funds are seeking to put cash to work as repayments on leveraged loans in Europe continue to outstrip new deals, with almost $11.8 paid down last month by members of Standard & Poor’s European Leveraged Loan Index compared with $3.5 billion of new issuance.

Leveraged loans are structured with a so-called term loan A piece for banks and a term loan B tranche for non-bank lenders. The B loans typically have bullet repayments made in one lump sum after seven years, while the A portions pay periodic installments of principal and interest and mature after six years. The bank-financed loans now account for 19 percent of deals, down from 28 percent in 2010, the data show.

Jimmy Choo is syndicating loans with no term loan A. As much as 135 million pounds ($218 million) of the 160 million- pound seven-year term loan B will be reserved for non-bank lenders, according to UBS AG, coordinator of the loans. The deal will finance the acquisition of the London-based fashion brand by Labelux, the luxury venture formed in 2008 by Germany’s billionaire Reimann family.

London’s O2 arena, controlled by billionaire Philip Anschutz, plans to refinance with a new 150 million-pound seven- year term loan B and an equity injection from its owner, according to data compiled by Bloomberg.

Both Jimmy Choo and O2 arena loans offered an initial interest of 450 basis points more than the London interbank offered rate, Bloomberg data show. A basis point is 0.01 percentage point.

Cinven Priority

Cinven Ltd. relied on non-bank investors to pay for its buyout of SLV Group, a Ubach-Palenberg, Germany-based maker of lighting systems earlier this year. The acquisition financing in April used 219 million euros of loans B that paid initial interest of 450 basis points over the euro interbank offered rate, and 56 million euros of six-year term loans A with a margin of 400 basis points, according to Bloomberg data.

“Cinven in general has always prioritized flexibility even if it means marginally higher cost,” said Soren Christensen, a debt financing executive at the London-based private-equity firm. “For us, the value of non-amortizing and longer-dated B loan albeit at a higher interest margin, is still a better proposition than an amortizing loan, given the flexibility it provides to the business. The business can use the increased cash flow to invest and grow instead of paying down debt.”

Inflows to funds dedicated to loans and floating-rate debt jumped to $8.5 billion this year, compared with $1.7 billion in the same period in 2010, data from Cambridge, Massachusetts- based EPFR Global show. Gala Coral Group Ltd., the U.K. gaming company run by Apollo Global Management LLC-led creditors, last month repaid all its amortizing debt with 1.45 billion pounds of term loans B and bonds.

“We will likely see more deals with little or no A loans in the next 18 months,” Christensen said. “The financing market has improved a lot this year, probably more rapidly than people would have expected six to 12 months ago. It’s a good market for issuers now.”

--Editor: Cecile Gutscher, Paul Armstrong

To contact the reporter on this story: Patricia Kuo in London at pkuo2@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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