Investing, Economic and Commerse :: Money news

Lpc europes leveraged loan market braced for _75bn of deals in january

Dec 20 Europe's leveraged loan market is gearing up for a busy January with around 7.5bn-equivalent of underwritten paper set to be syndicated. The pipeline has been building with a number of auction processes concluding at the end of November and December, leading banks to hold off syndication until next year. The loans will be welcomed by a growing number of buyers in Europe's leveraged loan market, including new and existing CLOs, managed accounts and banks, many of which have an increasing appetite for higher yielding, covenant-lite term loan B paper. One of the most anticipated deals for January is US$1.907bn-equivalent of loans backing US-based website domain name provider GoDaddy's acquisition of peer Host Europe Group. The fully committed debt financing includes a US$1.377bn-equivalent incremental term loan, split into a dollar-denominated tranche and a euro-denominated tranche. Other large deals include 1.5bn of leveraged loans to back buyout group Lone Star's acquisition of Germany-based building materials maker Xella and 1bn to back UK software company Micro Focus International's acquisition of Hewlett Packard Enterprises' software business, which forms part of a wider US$5bn loan financing.

In another cross-border deal, banks will syndicate around 200m for Blackstone's Acetow buy, the cigarette filter business spun out of Belgian chemicals group Solvay. That deal is also likely to have around US$600m of loans. Credit Suisse, Goldman Sachs and Deutsche Bank are among the line-up of banks providing the financing. Credit Suisse, UBS and Rabobank are lining up a leveraged loan financing to back CVC Capital Partners' buyout of Belgian aluminium systems manufacturer Corialis, while Onex's buyout of British holiday park operator Parkdean Resorts will be backed with a £750m leveraged loan. Smaller deals include around £150m of loans for EQT's buyout of UK veterinary care business Independent Vetcare; 260m for Ardian's buyout of French medical packaging manufacturer Unither Pharmaceuticals; 300m for Israeli furniture maker Keter Group's acquisition of Italian plastic furniture manufacturer ABM Italia; and a 286m-equivalent loan financing to back Mid Europa Partners' buyout of Romania's largest supermarket chain Profi Rom Food.

A £285m term loan for UK private hospital operator BMI Healthcare also has to relaunch. It was postponed in November until negotiations with its external landlord are completed.

HOLD UP While some bankers are not delighted at holding paper on the balance sheet during the Christmas period, others feel confident it will sell quickly once launched."Holding loans is generally something to be avoided but people are pragmatic about it and it is arguably better than launching a process now as the window is shut. Syndicate desks don't have a problem from a market risk perspective, but banks as a whole prefer not to hold significant positions over the year-end. It is more of an issue for banks with December year-end," a syndicate head said. The flow of deals will go some way to alleviate the technical conditions and downward pricing pressure that have plagued Europe's leveraged loan market in 2016, but is unlikely to reverse it entirely."It is good that deals are lined up to launch, but the expectation is that it will not be enough to mop up surplus capacity. It should take some pressure off price tightening, but not enough to reverse it and see pricing rise again," the syndicate head said.

Mideast money saudi regulator limits valuation changes in accounting shift

* Listed Saudi firms to adopt IFRS by 2017* IFRS rules could have allowed big swings in valuations* But regulator directs cost model to be retained initially* Impact uncertain for large, complex groupsBy Celine AswadDUBAI, Oct 16 Saudi Arabia's securities regulator has acted to prevent big swings in the valuations of companies' assets after they shift to new accounting standards next year. As part of efforts to bring the Saudi stock market into the global investing mainstream, the nation's 175 listed companies are being required to adopt International Financial Reporting Standards (IFRS) from the start of 2017. For decades, most Saudi firms have used local accounting standards, known as SOCPA, which require assets to be valued at cost when acquired with no subsequent revaluation. IFRS also requires impairments to be assessed quarterly, with an annual valuation of the residual value of fixed assets.

In a statement on Sunday, however, the Capital Market Authority (CMA) directed that for the first three years after IFRS adoption, companies should continue to use the cost model when measuring property, plant, equipment and intangible assets. During this period, they should disclose estimated changes in the fair value of their assets only in the footnotes of their financial statements, the CMA said. The regulator added that it had not yet decided whether to continue the cost model after the three-year period ended, or whether to introduce revaluations at that time. It did not give a reason for its decision, but many changes in values could have been highly controversial because Saudi Arabia lacks liquid markets and valuation expertise in some areas. A Saudi equity analyst, declining to be named because he was still studying the CMA's decision, said the regulator appeared to be acting to reassure investors and limit volatility.

"This addresses the concern of how companies with heavy assets on their books are expected to be impacted," he said. BOOKS Before the CMA's decision, many Saudi companies had been expected to use IFRS to revalue assets that have been on their books for years. In some cases, values might have increased several-fold, reducing firms' reported leverage ratios.

"Revaluation could increase asset values of most companies because of their current cost-based treatment," Al Rajhi Capital said in a research note published before the CMA's decision. Major beneficiaries could have included real estate-related businesses such as developer Dar Al Arkan, which had a 3.7 billion riyal ($987 million) investment property valuation on its books at the end of last year. Meanwhile, IFRS could have been negative for some industrial companies by obliging them to record higher depreciation charges for assets. For example, analysts had thought cement companies with decades-old kilns could face higher depreciation expenses. Analysts said the impact of IFRS on the biggest and most complex companies, such as petrochemicals and metals conglomerate Saudi Basic Industries (SABIC), was difficult to predict."SABIC has a more complicated corporate structure than other listed shares, so we believe the IFRS changes are a short-term concern," NCB Capital's Iyad Ghulam said. Only banks and insurers currently follow IFRS in Saudi Arabia, while a small number of listed companies - including telecoms group Etihad Etisalat (Mobily) - have partially converted. Some companies are making the change early. SABIC, for instance, has said it expects to publish earnings in the IFRS format by the fourth quarter of this year. Others could miss the deadline for conversion as they contend with issues such as revenue recognition, cost structures and identification of employee benefit schemes, though the CMA has not said how it will deal with any stragglers.