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Bankers tap direct lenders on tough deals
[LONDON] Leveraged loan bankers are approaching direct lenders in a bid to sell down difficult deals as the distinction between syndicators and private money narrows.
Banks have approached a number of direct lenders on a €300m term loan backing Platinum Equity's acquisition of a majority stake in Spain's frozen fish producer Iberconsa after failing to attract interest from CLOs and credit funds - the typical buyers of syndicated leveraged loans - during a pre-marketing process.
The loan was underwritten by Bank of America Merrill Lynch and Santander, alongside Morgan Stanley. It has proven a hard sell given the sector and the jurisdictions Iberconsa has exposures to, including Argentina, Namibia and South Africa.
Platinum was not immediately available to comment.
"Platinum is BAML's ‘special sponsor' so they've done them a big favour doing Iberconsa as it isn't an easy sell and not one for the syndicated loan market," a banker said.
An investor said: "Due to the risk of the underlying commodity (fish) and price volatility it was declined. It is hard as sales are in euros to Spanish suppliers and costs are in dollars for the workforce. The fishing rights are in Argentina and Namibia and are subject to government risk, which could change at the stroke of a pen."
The 310 million euro (S$473.9 million) add-on loan for US enterprise software solutions firm Openlink hit the radar of direct lenders after struggling in syndication.
However, the add-on was scrapped and wrapped into a larger US$2.21b-equivalent loan that launched earlier this month backing the combination of Openlink, TriplePoint and Wall Street Systems into ION Corporates.
Direct lenders approached banks on a 275 million euro refinancing of packaging firm Schur Flexibles after the deal stumbled. However, it eventually sold to investors following a lengthy syndication process.
The European leveraged loan market has suffered with a lack of dealflow and competition between banks and direct lenders has intensified as the former look to do smaller deals and the latter stretches to do larger deals.
Increasingly, both bankers and direct lenders are being shown the same deals, especially in the mid-market space.
While private debt funds have been called upon to take pre-placed portions of junior debt on syndicated transactions, it is very unusual that banks would approach the private debt market to sell down senior paper.
Holding paper can be expensive for banks. Direct lenders however charge a premium for their money compared with CLOs and credit funds and can be at least 200bp higher. The practise of syndicating to a direct lender could cause a bank to maximise any agreed flex on a deal and book a loss.
"If you can get a tough deal off the books and there was a quick derisking exercise, the run return calculations make sense. However it doesn't help your franchise as banks like to have product in the market and need to be seen as active leveraged finance desks," a second senior banker said.
A third banker said: "It is one thing to get rid of some sub-paper on a deal, it is another to admit defeat and go directly to the direct lenders."
Bilateral talks between bankers and direct lenders has its advantages as it enables bankers to keep control of the narrative, while direct lenders can keep the talks discreet, without alerting deal hungry peers.