Buying a car

Lpc leveraged loan repricings usher in more aggressive terms


´╗┐May 8 Sponsors are pressing for more aggressive terms on European leveraged loans, taking advantage of changing market conditions to force though concessions to documents during repricings. German ceramics company CeramTec kicked off the recent repricing wave in Europe in April, managing to shave 50 basis points (bp) off a euro term loan to 325bp over Euribor with a 1 percent floor. While investors agreed CeramTec's pricing was tight, 100 percent of lenders opted to retain their exposure in the credit, accepting that pricing has tightened in a market plagued by plentiful liquidity and few deals. With a bleak LBO pipeline, repricings are expected to continue and are likely to seek even more aggressive terms. The most recent repricing for CVC Capital Partners' French rail equipment maker Delachaux also loosened restrictions on dividend payments as well as lowering spreads."If you are a sponsor or sponsor's lawyer, you would be thinking now, while you are doing a repricing, why not just do a bit more?" a loan banker said. Delachaux revised its repricing and tightened terms after strong support for the deal. The euro tranche, which was increased by 70 million euros ($78.51 million) to 405 million euros, will be cut by 50bp to 375bp over Euribor at par from initial guidance of 400bp.

The dollar tranche, which was decreased by 70 million euros-equivalent to $250 million, will be reduced by 75bp to 350bp over Libor, the tighter end of initial guidance. The dollar tranche is offered at par, with a 1 percent floor and reinstated 101 soft call protection for six months. In addition, the ability to take dividends was loosened to enable a payment if leverage is 5.0 times, up from 4.25 times. The deal was initially looking to loosen it to 4.75 times. In addition to cutting pricing and loosening dividend language, sponsors are trying to strip out covenants and make it easier to raise additional debt and make acquisitions, in a bid to try and bring debt on existing portfolio companies in line with new deals they can arrange in the market."There has been a resetting of Europe's leveraged loan market. The adjusted terms on dividends and covenants among other things are what you would get if you raise a new deal right now, so why not ask for them on an existing deal?" a second loan banker said.

GET IT WHILE YOU CAN Borrowers are maximising the window of opportunity as new deals appear few and far between and potential repricings are predicted for a number of companies including German packaging group Mauser, which was sold to private equity firm Clayton Dubilier & Rice last year, and Luxembourg-based ink and pigment firm Flint, which was acquired by Koch Industries and Goldman Sachs' private equity last year.

Some bankers are even approaching borrowers and pitching to reprice leveraged loans raised earlier this year."If a credit is doing really well, there is no way it should be paying 450bp with so much liquidity and so little deal flow," a third loan banker said. Lenders that were in the market pre-2007 are raising concerns over what they see as a potential return to more risky practises on some leveraged deals."Some feel we are back in a situation like pre-2007 and it is even more alarming because documentation is much weaker than it was back then. It is rubbish when people say banks' credit acumen has been heightened by what they experienced pre-2007 as we are back at it. It is quite depressing, history is repeating itself," the third banker said. Once some new deals come to the market, borrowers are likely to stop focusing on repricings, something which will come as a relief to bankers, which make very little fees on these deals and are unpopular among fund managers."A borrower will look to get whatever they can get, but at some point the market will start saying no to repricings and document changes," the first loan banker said. ($1 = 0.8917 euros)

Malaysias i vcap launches second islamic etf


´╗┐Malaysia's i-VCAP Management Sdn Bhd has raised 20 million ringgit ($6.1 million) for its second Islamic exchange-traded fund (ETF), a modest showing compared to its maiden product launched in 2008. The firm, partly owned by sovereign wealth fund Khazanah Nasional, issued 20 million units this week for the MyETF MSCI Malaysia Islamic Dividend fund. That is well below the 840 million units issued in January 2008 for the MyETF-DJIM25, the first Islamic ETF in Asia, which now has 255.1 million units in circulation giving it a net asset value of 289 million ringgit.

ETFs are funds which track indexes of shares, bonds or commodities and are traded on stock exchanges. Their sharia-compliant versions follow religious principles such as bans on interest and gambling. The launch brings the total number of ETFs listed on Bursa Malaysia to six and comes after Malaysia's securities commission introduced a new method to screen stocks for sharia-compliance.

The new methodology incorporates quantitative filters such as benchmarks for financial ratios, moving closer to the approach used in the Gulf as authorities try to internationalise the country's Islamic finance industry.

The new ETF from i-VCAP offers access to a basket of sharia-compliant stocks at a lower cost than through a mutual fund, charging total annual fees of 0.505 percent. Since ETFs are designed to minimise cost, reaching an optimal size is particularly important, with several Islamic ETFs in the market yet to arrive at such a threshold.i-Vcap is a subsidiary of Valuecap Sdn Bhd, which is owned equally by Khazanah, Permodalan Nasional Bhd and civil service pension fund Kumpulan Wang Persaraan. ($1 = 3.2965 Malaysian ringgit)