Adevinta Shows How Far Private Lenders Will Go to Win Deals

A race to provide financing for the buyout of classifieds company Adevinta ASA shows that direct lenders are willing to slash their terms in order to win deals, even in a volatile market.

(Bloomberg) — A race to provide financing for the buyout of classifieds company Adevinta ASA shows that direct lenders are willing to slash their terms in order to win deals, even in a volatile market. 

Pricing for direct loans has largely been between 650 and 675 basis points over the Euribor benchmark for the last two years. For Adevinta, where Apollo Global Management and Goldman Sachs Asset Management are involved in the plans, direct lenders are offering 575 points, with an original issue discount at 98 cents on the euro.

That highlights how despite a retreat in risk appetite in recent weeks, direct lenders are still cutting prices on underwriting mergers and acquisitions. They’re competing for fewer deals, making competition fierce when take-private bids for strong companies come up.

“Private credit has come in tighter because they would like to participate in some of these larger, hopefully better credits,” said Roxana Mirica, partner at Apax Partners, speaking on a panel at the Association for Financial Markets in Europe conference in London on Thursday.

Other prominent lenders working on Adevinta include Sixth Street Partners, HPS Investment Partners, Intermediate Capital Group and Blackstone Inc. The prospective financing is the latest example of buyout firms running a so-called dual-track process, where they seek competing bids from both direct lenders and banks.

Read more: Apollo, Goldman Eye Record €4.5 Billion Direct Loan for Adevinta

On the bank side, the deal has become a key focus, according to some leveraged finance bankers pursuing it. Adevinta is seen as a good fit for the syndicated market and already has term loans outstanding. 

If the deal does go to private credit, it would be the largest-ever direct lending package in Europe, topping the £3.5 billion ($4.3 billion) provided to Access Group last year. It would be the latest example of a burgeoning $1.5 trillion private credit industry taking business from banks.

Historically, the gap between the public syndicated debt market and private credit was much larger, with syndications for high-yield bonds and leveraged loans for buyouts at a margin of around 400 basis points. That compared with the 600 to 700 basis points offered by direct lenders when interest rates were near zero, said Mirica. 

Now, the gap is a lot tighter. “That incremental 100 to 150 basis points is not a lot in the overall cost of financing,” she said. 

Meanwhile, banks have been reducing the pricing protection they demand when committing to new deals, known in the industry as flex. Levels are returning toward historical norms of around 125 basis points, rather than more than 200 basis points, according to leveraged finance bankers. 

“Direct lenders have continued to cut their pricing in order to compete with the syndicated market,” Rahul Mistry, a managing director at Goldman Sachs Group Inc., said on a panel at the AFME conference. “Everyone is chasing the same five deals.”

Direct lenders aren’t only competing on pricing. They’re also offering borrowers more leverage and risky financing products, including payment-in-kind options, which allow the borrower to delay interest payments until the bond’s final maturity. 

Read More: Private Credit Offers Payment-in-Kind to Win Medtronic Deal 

“There are things that direct lenders can do which may be harder in the syndicated market,” Luke Gillam, head of EMEA credit finance capital markets at Goldman Sachs, said on a AFME panel. “You can get slightly better pricing in the syndicated market, but the competition is more dynamic than that because there are questions around leverage, certainty and documentation.”

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