Private equity giant Blackstone announced its biggest investment in Asia Pacific last week with a A$24bn (US$16.12bn) bid for Australian data centre operator AirTrunk that will spur the region’s leveraged finance market even as a growing and competitive pool of lenders is leading to more diverse financing structures.
Blackstone, teaming up with the Canada Pension Plan Investment Board, is expected to raise at least A$5.5bn to support the leveraged buyout. An army of banks is involved given the deep relationships the sponsors and the target enjoy across the lending community.
And in a further boost for leveraged finance bankers, Global Infrastructure Partners could also raise debt to finance a A$5bn-plus purchase of a 40% stake in Australian gas and electricity distributor Jemena.
The financial sponsors involved will be spoiled for choice given the abundant liquidity among lenders and the dearth of deal flow this year. M&A loans, including LBO financings, from Asia Pacific ex-Japan totalled a mere US$10.91bn year-to-date compared with US$26.29bn for 2023 as a whole, according to LSEG LPC data.
The leveraged finance market in Asia Pacific has seen growing participation from non-banks, leading to a bigger variety of financing structures.
“I have never seen as much liquidity across a whole range of different sources available,” said Gavin Chappell, head of acquisition finance and syndications at ANZ. “Borrowers have multiple options to raise financing, and within each of those options, there is a whole range of different investments prepared to lend into those transactions.”
Spreading influence
Private credit lenders are growing in significance in Asia Pacific, able to provide financing options as deal sizes grow larger.
“The APAC market has seen more institutional-driven solutions via unitranche and Term loan B structures coming to market in the first half of 2024, especially where sponsors have sought incremental leverage and greater flexibility,” said Siong Ooi, co-head of debt capital markets for Asia Pacific at MUFG.
One case in point is private equity giant KKR & Co, which is seeking financing of at least A$940m to back its LBO of the wealth management and corporate trust businesses of Australian financial services firm Perpetual.
The borrowing comprises two covenant-lite unitranches with tenors of up to seven years, and facilities for capital expenditure, cash advances and letters of credit.
Apollo Global Management, Blackstone, HPS Investment Partners and Macquarie Principal Finance are among the lenders of the unitranches, while banks including Deutsche Bank, ING Bank, MUFG and UBS are providing cash advances and LC facilities of around A$150m–$200m.
Last month, Australian cancer care provider Icon Group increased the size of an add-on TLB to A$300m. The first-lien deal, marking the first Australian dollar TLB this year, financed the acquisition of UK-based specialist pharmaceutical and healthcare company Pharmaxo Group. It also repaid A$100m of a A$179m second-lien portion from a TLB completed in 2022.
Earlier in July, Australian experiential tourism services provider Journey Beyond wrapped a A$495m TLB. In May, EQT Private Capital Asia completed the repricing of unitranche financings for its LBOs of two business process outsourcing firms – a US$350m borrowing for IGT Solutions originally closed in 2022 and a US$500m loan for Straive signed in 2021.
According to Ooi, global credit funds have offered covenant-lite unitranche structures as well as payment-in-kind options for a portion of the interest margin in certain loans.
“This has been a financing structure that global sponsors have been actively pursuing of late given strong appetite from global credit funds to deploy in size for deals in Oceania. This follows the wave of repricings in US leveraged capital markets where relative value benchmarks have been reset,” said MUFG’s Ooi.
He also pointed out that there has been “increasing holdco activity as sponsors look for alternative financing options to optimise returns, fund capex or refinance shareholder loans”.
According to Andrew Ashman, head of loan syndicate for Asia Pacific at Barclays, “a strong credit from a reputable sponsor will be able to secure a covenant-light unitranche. The quality of the credit, the stability of the underlying earnings and the reputation of the sponsor are essential in driving more flexible terms in the unitranche market.”
Although non-bank lenders are playing more important roles than before in Asian leveraged finance, they are not supplanting banks that dominate this segment in the region – unlike the vastly bigger and deeper European and US leveraged finance markets, where private credit firms have eaten into the market shares of banks.
“The huge growth in private credit is helping to drive the TLB and unitranche markets. However, the bank market is open and supportive, so many sponsors are opting for cheaper bank-style syndications,” said Ashman.