Bloomberg News

Lonza Seeks $1.55 Billion in Loans for Takeover as M&A Increases

July 22, 2011

July 22 (Bloomberg) -- Lonza Group AG and Academy Sports & Outdoors Inc. are seeking more than $2.3 billion in takeover loans as year-to-date mergers and acquisitions exceeds the year- over-year volume by $360 billion.

Lonza, the world’s biggest maker of drug ingredients, is seeking $1.55 billion in term loans to back its purchase of Arch Chemicals Inc. while Academy Sports is getting an $840 million term loan to finance its buyout by KKR & Co.

Global mergers and acquisitions have increased 34 percent this year compared with 2010, leading more companies to the high yield, high risk loan market to finance the transactions. More than $133 billion of loans have been arranged so far in the U.S. this year to finance mergers, acquisitions and buyouts, according to data compiled by Bloomberg, up from $40 billion during the same period last year.

“One of the key drivers behind M&A has been the limited organic growth prospects for companies,” said Darin Schmalz, a director at Fitch Ratings in Chicago. “The pick up is not only just because valuations are more attractive but because of the growth prospects for the acquiring company.”

Lonza’s purchase values Arch at as much as 17.2 times forecast earnings per share for 2011, according to Bloomberg calculations. Acquirers of specialty chemical companies paid a median of 19.1 times earnings in the past two years, data compiled by Bloomberg show. Including debt, the acquisition values Arch at $1.4 billion.

Lonza Loan

The loans will pay lenders 0.25 percentage point to 2.15 percentage points more than the London interbank offered rate, depending on Basel, Switzerland-based Lonza’s debt level relative to Ebitda, or earnings before interest, taxes, depreciation and amortization, according to a July 15 regulatory filing.

JPMorgan Chase & Co., Citigroup Inc. and Credit Suisse Group AG are arranging the loans, according to the filing. The banks will also supply Lonza with a 700 million Swiss Francs ($854.5 million) revolving credit line.

The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, rose 0.03 cent yesterday to 94.7 cents on the dollar. The index has fallen 1.78 cents since Feb. 14 when it hit a high for the year of 96.48 cents. Prices rose the same day that a new European bailout plan was announced. The Greek financing package will include 109 billion euros ($156.5 billion) from the euro region and the IMF, while financial institutions will contribute 50 billion euros after agreeing to a series of bond exchanges and buybacks that will also cut Greece’s debt load.

‘Restricted Default’

Fitch Ratings said today Greece would face a “restricted default” under the bailout plan, in which bondholders will assume some of the cost. The exchange implies a 20 percent net present value loss for banks, according to the Fitch statement.

“An exchange that offers new securities with terms that are worse than the original contractual terms of the existing debt and where the sovereign is subject to financial distress constitutes a default event under Fitch’s ‘coercive debt- exchange criteria,’” according to the statement.

Global mergers and acquisitions announced this year increased to 14,585 deals valued at $1.42 trillion, up from 13,906 deals valued at $1.06 trillion in the same time period last year, Bloomberg data show.

Academy Sports pushed up the deadline for commitments to July 26 from July 28 to its $840 million buyout loan due to investor demand, according to a person with knowledge of the transaction.

The loan for the Katy, Texas-based company was being offered to lenders at 4.75 to 5 percentage points over Libor, with a 1.5 percent minimum on the lending benchmark, said the person, who declined to be identified because the terms are private. The debt is expected to price at 98.5 cents on the dollar.

Morgan Stanley is arranging the deal, according to the person.

--With assistance from Christine Idzelis in New York and Simeon Bennett in Singapore. Editors: Faris Khan, Cecile Gutscher

To contact the reporter on this story: Richard Bravo in New York at rbravo5@bloomberg.net.

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


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