Singapore packaging company Goodpack, which is being taken over by US private equity firm KKR for $1.4 billion, wrapped up its $720 million leveraged buyout financing on Tuesday, attracting about $100 million of interest from Asian institutional investors, according to a source familiar with the matter.
The presence of some regional demand for the high-yield loan augers well for the development of a non-bank lending market in Asia and industry players expect more borrowers to tap the US high-yield loan market in coming months.
The deal was always going to be driven by the US institutional investor base, but Goodpack had held investor meetings in Singapore in July to test demand in the region. There was one large order from an Asian investor for the second lien and some interest in the first lien.
“Asia was always going to be a smaller portion,” said the source familiar with the matter. “Just the fact that it’s not zero is interesting.” The ultimate amount allocated to Asia is unclear.
The leads upsized the unsecured seven-year first lien to $550 million from an initial indication of $520 million and downsized the eight-year second lien to $170 million from $200 million. The total funding size remained unchanged. This was in favour of the sponsor, as the second lien was more expensive, the source familiar with the matter said.
The first lien offered a margin of Libor plus 375bp and was offered at 99.25 to yield 4.94% while the second lien offered a margin of Libor plus 700bp and was offered at 99.25 to yield 8.19%. Across both tranches, the deal offered an average cost of financing of 5.70%, which is competitive for a single-B rated borrower.
In March, Blackstone-backed Pactera Technology sold a $275 million seven-year high-yield bond to yield 8%, in the first high-yield bond financed LBO since 2011. The notes were rated Ba3 by Moody’s. Goodpack’s first and second lien were rated B2 and B3 respectively.
Goodpack’s leveraged loan closed amid persistent weakness in the US high-yield market last week and the leads decided to accelerate the closure of the deal against that backdrop. Despite the broader weakness, Goodpack paid a smaller premium over its US counterparts than expected.
“The non US premium was about 25bp, which is lower than what many expected,” the source familiar with matter said. “It’s promising for Asian LBO as it shows they can be done in the US at attractive levels.”
For borrowers, the US market allows a leverage that is close to double what can be achieved in the Asian bank market. According to a Moody’s report in July, Goodpack’s debt-to-Ebitda ratio will be about 6.5 times at close. By comparison, the leverage levels for most Asian buyouts are about three times. Loans sold in the US market also have little amortisation and longer tenors.
Asian leveraged loans marketed to US institutional investors are showing signs of picking up as the Asian LBO market has been heating up during the past year. Meanwhile, the US leveraged loan market has been performing and the pricing levels at which companies can tap the market is compelling. US and European investment banks have also been promoting such loans to Asian companies.
According to Dealogic, the value of US institutional investor marketed leveraged loans from Asia Pacific ex-Japan totalled $10.9 billion last year but so far this year stands at just $1.8 billion. However, industry players expect an uptick of such loans in coming months. According to a second source at a bulge-bracket bank, he is currently working on a pipeline of about 11 such deals across Asia and Australia.
Chinese packaging company HCP, which was acquired by private equity firm TPG in 2012, is expected to close a $380 million covenant-lite loan financing targeting US institutional investors soon.
Earlier this year, Australian companies Sensis and Nextgen tapped US investors for loans. The latter, which is owned by the Ontario Teachers’ Pension Fund, refinanced its leveraged buyout by tapping the US loan market, as did Bobcat, a US forklift company that was bought by South Korea’s Doosan Infracore in 2007.
Morgan Stanley was lead left on the first lien and Credit Suisse was lead left on the second lien for Goodpack’s buyout financing. The joint lead arrangers for both tranches are Credit Suisse, Morgan Stanley, DBS, Goldman Sachs, KKR Capital, Macquarie, Mizuho and Natixis.
Goodpack provides bulk cargo packaging and logistics, particularly for companies in the rubber industry. It has operations in more than 70 countries.
