Market champion
Software AG's €1bn-equivalent term loan B marked a rare but high-profile victory for banks over direct lenders in 2023, with the European leveraged loan market making good on JP Morgan's 10-figure commitment to the deal by delivering significant demand and tight pricing.
The seven-year loan to back the German software company's take-private by Silver Lake was split between a €640m tranche and a US$405m tranche, as the distributed market proved it was back and playing in size for LBOs, while keeping a strong grip on price.
Silver Lake had disclosed the debt financing it lined up to back its €2.4bn takeover bid of Software in May, with the whole of the financing committed by JP Morgan.
"We were just coming off March and April, which was really rough and probably [one of the] worst periods in the entire year," said Ben Thompson, head of EMEA leveraged finance capital markets at JP Morgan. "It wasn't entirely obvious that people wanted to take down €1bn on their own in that market. It took weeks and months of work to understand the credit, deal with the sponsor, get their thesis and make sure we think the capital structure is appropriate."
JP Morgan was sole physical bookrunner for the TLB, with Santander and Citigroup joining as bookrunners.
Silver Lake laid the groundwork for the trade through dialogue with ratings agencies and a lender education process, given some complexity around the Software (B2/B/B+) credit story.
"Software was obviously very strong in certain elements but this was not a credit that every account was going to pick up the phone and say 'here's our order'," said Natalie Day Netter, JP Morgan's head of EMEA leveraged finance syndicate.
The deal was carefully timed to tap supportive conditions backed by a flurry of CLO issuance. The number of CLOs being priced or marketed hit double figures following the deal's launch on July 17, signalling a scramble before the typical August slowdown.
"This was probably the best, or one of the best windows, of the year," said Daniel Rudnicki Schlumberger, head of EMEA leveraged finance at JP Morgan.
Software has a natural need for US dollars, and the added currency helped to maximise price pressure.
Bankers tightened terms twice on Software’s euro loan and three times on the US dollar tranche, but the transaction remained highly oversubscribed. The margins were cut to 475bp over Euribor/SOFR from 500bp, while the OID on both tranches tightened to 98.75 from 97 at launch.
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