Coty assembles record club loan after banks refuse to underwrite
LONDON, June 11 (LPC) – KKR’s acquisition of a majority stake in the hair and nail care business of US cosmetics maker Coty is backed by a $ 1.3 billion club loan, the largest leveraged debt market in Europe since the financial crisis, after banks were unwilling to guarantee funding amid the coronavirus pandemic.
KKR agreed to acquire a 60% stake in Coty’s professional beauty and hairstyling businesses, including the brands Wella, Clairol, OPI and ghd – collectively known as Wella – in early May, valuing the company at 4.3 billion US dollars.
Buyouts are typically backed by underwritten finance which is then syndicated to investors, but banks had less risk appetite due to Covid-19 and were unable to provide collateral for Coty.
KKR chose to raise a club loan, which is expected to close in June, guaranteeing around 10 banks and a handful of investors to pledge US $ 1.3 billion, where the exposure will be kept on the balance sheet.
“There was no subscription market, so [the borrower] had to find more creative ways to finance the deal. There is nothing normal about the market we are in and what is unique is raising US $ 1.3 billion per club, which is a very impressive achievement. Funding for banking clubs (in the leveraged market) is normally US $ 200-300 million, ”said a senior banker.
The financing includes $ 1 billion of debt funded through a five-year A term loan and a six-year B term loan, as well as a $ 300 million revolving credit facility. The loans will be denominated in dollars, euros and pounds sterling.
Banks and investors will take the TLA and the TLB. The TLB will cost with a handful in five years and operate around 3.5 times the company’s roughly US $ 350 million EBITda.
The financing will have a leveraged commitment and will be offered with 101 soft-call for 12 months, which means it will not be refinanced or revalued during this period.
KKR has relied on its relationships with banks and funds to set up such significant club funding.
While some other borrowers might try to do something similar, this is unlikely to become a trend and could be reserved only for high profile sponsors.
“It’s a relationship-based transaction. People have to love credit and KKR or else they won’t. The fact that the deal is done is proof that the banks have been very supportive, ”said the senior banker.
The financing was put in place towards the end of April, when the banks were still averse to underwriting risk.
Since then, a trio of banks – Morgan Stanley, Barclays and BNP Paribas – have agreed to take out € 3.5 billion in debt to support a takeover bid for Spanish telecommunications company MasMovil. Emerging on June 1, MasMovil was the first underwriting in the leveraged loan market in Europe since the pandemic put Europe on lockdown. It is also a KKR agreement.
While the market is now open to some subscriptions, MasMovil is a very different loan from Wella as it is rated and has a base of loan borrowers.
“MasMovil came four weeks after Coty. MasMovil is rated and has existing debt outstanding – this is a different set of circumstances. However, the market is growing rapidly, ”said the senior banker. (Edited by Christopher Mangham)