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Trlpc cheaper euros trump dollars for leveraged loan borrowers


´╗┐Leveraged loan borrowers are increasingly opting to raise euros in preference to dollars taking advantage of the tighter terms on offer in Europe's loan market and investor appetite to lend. The European loan market has traditionally lagged behind its US counterpart, which fulfilled the needs of US borrowers and lured European companies to the larger, more liquid and entrenched market that historically offered lower pricing. But the US loan market is starting to lose some of its appeal as regulators get tough and impair lenders' ability to offer financings that fulfil borrower's needs, unwilling to lend in excess of six times leveraged or an amount that a borrower would be realistically unable to repay half of, within seven years via cashflows. The US is also losing its edge amid tighter US monetary policy which will push interest rates up while quantitative easing in Europe will drive down European yields as rates stay low."Europe is more attractive, that is a function of where the markets are right now. It won't necessarily continue. Part of it will be driven by QE and we will have to see how that unfolds but QE will drive European yields down and create a hunt for assets in Europe and in euros," a loan banker said. Investors in Europe also have a lot of money to put to work with a number of new credit funds, CLOs and repayments to existing funds. Borrowers are taking advantage of the situation, which has been exacerbated further by a lack of deals coming to market.

"Europe is definitely in vogue. It's as cheap as chips," a second loan banker said. SWITCH OVER

A number of deals are reflecting borrowers' growing favour for euros and some loan financings look different to what they would have done if they were in the market six months to a year ago, when dollars were more attractive. Swiss chemicals company Ineos has raised a 1.4 billion euro-equivalent ($1.48 billion) leveraged loan to refinance its 500 million euro floating rate notes and $1 billion senior secured notes. The majority of the new financing, unlike the previous financing, is denominated in euros. The loans include an 850 million euro tranche and a $625 million tranche. Pricing tightened to 325bp at 99.5 OID with a one percent floor from initial guidance of 350bp at 99 OID with a one percent floor.

The pricing achieved was far tighter than could have been obtained if the borrower opted to raise a majority or all of the loans in dollars, as the company arbitraged the transatlantic dynamic and leveraged off of the stronger euro market to get the best pricing, bankers said."Borrowers are raising euros, which is a reflection of the fact that the euro market is far stronger at the moment than the dollar market, in a reversal of where we were six months ago," the first banker said. US drug manufacturing firm Patheon has opted to raise an add-on facility denominated in euros to back an acquisition of IRIX Pharmaceuticals, despite the target company being headquartered in South Carolina. The 150 million euro add-on is guided to pay 350bp with a one percent floor. In 2014, private equity firm JLL Partners, which owned a controlling stake in Patheon, acquired a majority stake in DSM Pharmaceutical Products, a unit of Dutch food and chemicals group Royal DSM and combined the businesses to form a new joint venture majority-owned by JLL. The acquisition was backed with a $985 million loan and a 250 million euro loan."Patheon is a global business so makes sense to have euros in financing mix. When it did its first deal in 2014, the dollar market was stronger so it did the majority of the deal in dollars but now the euro market is stronger," the first banker said. The strength of the euro market is leading some borrowers that would traditionally only finance in dollars to consider euros. There is demand from euro investors for this, especially on large deals, such as Dutch semiconductor company NXP's $40 billion merger with US based Freescale. ($1 = 0.9451 euros)

Trlpc russian firms likely to handle maturing loans bankers


´╗┐Jan 19 Western bankers expect Russian corporate borrowers to be able to manage internationally syndicated loans maturing in 2015 even if the market remains closed because of sanctions implemented by the US and EU last year. Just over $21 billion of syndicated loans from Western banks are due to be repaid by Russian corporates and financial institutions in 2015, according to data from Thomson Reuters LPC. More than half that figure includes the remaining $11.9 billion tranche of a two-year bridge loan that backed Rosneft's acquisition of oil company TNK-BP in December 2012, which is scheduled to mature on February 13. Bankers expect Rosneft to repay the circa $6 billion outstanding portion of this loan from its own balance sheet, reflecting a wider trend at the moment among cash-rich Russia corporates to repay foreign debt from their own cash reserves."I do not see a problem for 2015, upcoming maturities are relatively mild for borrowers," said one loans banker. "What is interesting is that Russian corporates have been paying off their dollar-denominated debt with their war chests."Russia's largest steelmaker Severstal had an April maturity on a 450 million euro ($522.99 million) tranche of a bigger 600 million euro project finance loan signed in March 2008, however the company said it had only $13 million outstanding after repaying $457 million of the loan in the fourth quarter of 2014 from its cash reserves. Last week, Severstal also used its cash reserves to buy back some of its outstanding $600m bonds due in 2016 and 2017, while steel firm Evraz continued to try to buy back its $750 million 2015 notes. Another significant loan maturity in the first half of 2015 is a $1 billion facility for oil producer Tatneft. The deal is scheduled to mature in May and formed part of a $1.8 billion pre-export financing signed in 2011, but according to one banker the company has already made a $500 million pre-payment on it last year. Tatneft could not be immediately reached for comment.

"Many of these deals have already been refinanced, you rarely see borrowers waiting until a few months before maturity to refinance these loans," said a second loans banker. In addition, many of these facilities are pre-export amortising loans, which means many, by their nature, will be nearly fully repaid by maturity."Most of the facilities for this type of borrower are pre-export financings with amortisation such that they fully amortise by the maturity. I have not seen bullet loans (which repay in full on maturity) for corporates for quite a long time," said the second banker.

BANK BORROWERS A number of one-year facilities for smaller Russian banks that were agreed with Western lenders in 2014 after sanctions against the Kremlin were introduced by the West are also due to mature in 2015. Credit Bank of Moscow has a $250 million one-year tranche of a larger $500m loan maturing in March, while Otkritie Financial Corporation Bank - formerly Nomos Bank - and Promsvyazbank both have $120 million one-year deals maturing in November. Since these short-term deals passed through credit committees and won approval after the onset of the crisis, bankers say that they are likely to be rolled over again this year."In the short term these loans are likely to be rolled over since they have already been done once, a precedent has been set, so a second approval should be easier. After all, with no new lending going on Russian limits are plentiful," the second banker said.

HELP AT HAND For smaller, less cash-rich Russian businesses, a mixture of cash conservation including a reduction of capex expenses and rouble and dollar funding from the Russian central bank and local Russian banks will, in the short term, help shore up any shortfall in the repayment of foreign syndicated loans."Large significant Russian companies will be supported. There is strong institutional and government support, the large state-backed banks are better placed than Western banks, they have money in their wallet," the first banker said."There has also been a lot of adjusting of the cost base to price paradigm, a mixture of conserving cash to repay loans along with local and central bank funding will be important this year, they can certainly get through the next six to 12 months with a combination of this," he said. Local rouble funding is expensive and bankers say there will be some smaller, less systemically important Russian corporates that will find it more challenging to refinance their debt, and for them the possibility of default could be real. Where this occurs the bankers say that for now at least, they are willing to step in and extend loan facilities."Extension is the name of the name of the game, banks will have to trade value for tenor. Banks don't want to lose value but with little new business it is a good time to say you don't have to pay until 2016 when hopefully things have recovered," a third banker said. However, if the current crisis persists the situation could be more challenging in 2016 and 2017, when $28.9 billion of syndicated loans are due to mature, according to Thomson Reuters LPC data."It could get more difficult next year if the situation doesn't change, revenues will be down and the central bank might become more picky about who it supports. In that situation we are likely to see some restructuring," the second banker said. ($1 = 0.8604 euros)