A perfect blend
The €3.3bn loan backing professional investor Joh A Benckiser’s acquisition of Dutch coffee and tea company DE Master Blenders 1753, the owner of Douwe Egberts coffee, is the largest leveraged corporate acquisition loan to be sold to bank and fund investors since 2007.
The financing shunned the conventional bridge-to-bond route and opted for a euro-denominated, all-senior loan that created a new lender group for JAB and also met its aims of raising euro financing and avoiding the bond market and subordinated debt.
The €7.5bn acquisition of former Sara Lee spinoff Master Blenders by JAB, the private holding company of Germany’s billionaire Reimann family, was a standout M&A deal in an unremarkable year for M&A lending. The €1bn fund tranche was also the biggest new-money institutional loan in EMEA in 2013.
Bank of America Merrill Lynch, Citigroup, Rabobank and Morgan Stanley fully underwrote the loan, giving JAB certainty of funds to support the public-to-private sale only a year after Master Blenders was listed.
“The deal was unprecedented in terms of the structure, the complexity of the business and the large size of the financing,” said Toby Ali, head of EMEA leveraged finance origination at BofA Merrill.
The deal included a €1.25bn Term Loan A, a €300m revolver and a €1bn institutional Term Loan B2 that all paid 350bp over Libor, along with a €750m Term Loan B1 paying 375bp.
Without an existing bank group, the arrangers started with a blank page. The deal was a difficult sell with leverage of six times post-acquisition – a relatively high level for a Ba3/B+ rated company.
Sold as a deleveraging story based on management’s track record in cutting working capital, the deal was backed by the comfort of a €4.9bn equity cheque. JAB’s confidence in its ability to delever and refinance in two to three years was behind its decision to avoid bonds and restrictive call provisions.
The deal was launched into strong markets in May, but in June market turbulence complicated syndication of the fund piece. It could have been placed after a strong early-bird phase but went to retail syndication, attracting 25 banks and many funds.
Despite market conditions, pricing on the €1bn institutional tranche was flexed down by 25bp to 350bp after the deal raised a 1.5 times oversubscription from banks and a two times oversubscription from funds. Dollar provisions were scrapped as a result.
“There was a challenge in execution of bringing the institutional market with the bank market and applying tension. The market was volatile but we still managed to do the investor tranche,” said Richard Basham, co-head EMEA loan structuring and syndications at Citigroup.
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