TRLPC:Petco's buyout financing joins US$14bn US leveraged loan pipeline

Wed Nov 25, 2015 1:00pm EST
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By Jonathan Schwarzberg

NEW YORK Nov 25 (Reuters) - A debt financing of around US$3bn backing CVC Capital Partners and the Canada Pension Plan Investment Board's US$4.6bn acquisition of Petco Animal Supplies is joining a US$14bn pipeline of US leveraged buyout loans that are waiting to be sold after a US$5.5bn deal for data storage provider Veritas was pulled last week.

While Petco is viewed as one of the higher-quality credits that investors are still keen to lend to, the deal is likely to be syndicated next year, sources said. Conditions in the US market remain challenging and a volatile market and low average secondary prices continue to pose a threat to new issue.

The SMi index of the most actively-traded names was 95.70 on Nov 24, according to Thomson Reuters LPC data, which makes syndicating new deals at 100% of face value or par difficult as the secondary market continues to offer cheaper alternatives.

"It's a sloppy - to say the best - environment," said one investor.

The completion of Petco's buyout shows that banks are still willing to take risks and underwrite deals for companies that are viewed as strong credits. Chipmaker Avago Technologies was able to increase a term loan by US$2.25bn to US$9.75bn and added a 900m euro tranche to the deal that backs its purchase of Broadcom immediately before Veritas was pulled on Nov. 17.

"For now there seems to be a continued bid for the better market," said a banker. "But sentiment can turn on a dime and already people are in the mode. You don't even have to be too bad to fall into the bad bucket."

The decision to go ahead with Petco's debt financing, which was underwritten by Barclays, Citigroup, Royal Bank of Canada, Credit Suisse, Nomura and Macquarie, reflects the company's strong credit profile and a good following with investors after multiple recapitalisations, which is reflected in its trading profile in the secondary loan market.

Petco's existing US$1.2bn loan traded up to par after the buyout was announced, as expected, but the loan was trading at around 99.75 before the deal was announced - well over the 95.70 average bid.   Continued...