Failure is not an option
Spanish telecoms company Masmovil's €2.96bn buyout by a trio of private equity funds was the first underwritten financing to be announced globally since Covid-19 roiled markets.
The purchase, by KKR, Providence and Cinven, was both a complex take-private and the largest leveraged buyout in Spanish history – and it was underwritten during both the worst market crisis since 2008.
The €3.5bn financing package for the deal was underwritten at the end of March – when the spread on the iTraxx crossover index had almost tripled over the course of a month as the reality of the pandemic sent investors panicking.
"We underwrote this deal when the crossover index was 600bp – that was not a comfortable place," said Martin Luehrs, co-head of EMEA leveraged capital markets at Morgan Stanley.
"Underwriting a transaction when there is so much volatility was incredibly challenging. The diligence had to be nailed down while there was zero appetite or ability to take risk out in the bond market. Failure was not something that we could contemplate."
Masmovil's take-private was formally announced in June but by that time leads had been debating for months how to time a take-out.
The financing involved a four-part de-risking, including an initial term loan B in June, a senior secured bond in September – and a tap of each instrument.
Leads eventually pulled the trigger on the senior secured bond on September 21, just days after a large majority of shareholders had accepted the tender offer for Masmovil.
It was a good window: markets were rallying thanks in part to action from governments and central banks. It also helped that leads had partly derisked the bond by upsizing the loan – from €1.5bn to €2.2bn – on the back of strong demand.
Masmovil (B+/B1/B+) priced the €720m seven-year non-call three senior secured bond (B1/B+/BB) at 4%, via lead-left bookrunner and global coordinator Morgan Stanley, alongside bookrunners Barclays, BNP ParibasandDeutsche Bank. Price talk had been 4%-4.25%.
"We benefited from the market rally that followed, thanks to central banks and fiscal measures but obviously we didn't know that things would go as well as they did," said Luehrs.
"This is the deal that really tested investors and market capacity and helped bring other deals to market."
The bond was subsequently tapped for €80m just ahead of the US election in November to support a minority squeeze-out of the shares through a tender offer. The tap was priced at 101.375, for a 3.771% yield.
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