Permira and Pemberton take second bite in ETC Group’s syndication process

Lara Gibson
+Kat Hidalgo

22 September 2022•2 min read

Former unitranche lenders Permira and Pemberton returned to support ETC Group’s syndication last month after the process was less widely syndicated due to difficult market conditions, sources close to the deal told 9fin.

Pemberton participated in the €475m euro-tranche and Permira in the €525.9m-equivalent dollar tranche. The two funds were formerly ETC’s unitranche lenders prior to Cinven’s acquisition of the telecom network provider in June and had expressed willingness to remain as lenders before Cinven opted to go down the syndicated route.

Direct lenders have said that on multiple occasions in recent months sponsors will opt for a general syndication after offers have been made by private credit funds early on in a debt financing, effectively turning their nose up at them. The sponsors have then “come running back” after a challenging syndication.

After acquiring ETC Group from Carlyle earlier this year, Cinven launched a €972.4m-equivalent US dollar TLB this summer but later decreased the dollar tranche to €525.9m-equivalent and added a €475m euro-tranche after the syndication struggled to gain traction.

Ultimately, 5 to 6 direct lenders ended up participating in the deal, sources close confirmed.

The dollar tranche pays 600bp over SOFR and the euro tranche has pricing of 625bp over Euribor. The US dollar tranche has a 0.5% floor, the euro tranche as a 0% floor and the two seven-year loans come at a 92 OID. The $538m loan is currently trading at 95.

9fin wrote about the “uneasy” process in early August and buysiders at the time highlighted the irregular amortization structure. The loans amortize at a rate of 2.5% per annum in the first and second years of its tenor, and 5% thereafter.

Buysiders told 9fin that some borrowers adopt this structure to entice lenders to participate in the transaction. “It’s all about getting back your money sooner. If the company can give more amortization, then I want it because it’s better than waiting,” commented one buysider.

Pemberton and Permira’s participation is yet another example of direct lenders diving into the syndicated market to take down hung LBOs.

The trend, which emerged in Q1 following the outbreak of the Ukraine war, is becoming so endemic to the extent that some direct lenders have said they prefer entering struggling syndicated loan scenarios to typical direct lending situations as there is generally more information available on the credit, lower leverage and high upfront fees.

Direct lenders also said they are in such a strong position now that they have the luxury of choosing between a variety of different deals, and can go in with tickets of €200-300m to achieve even more bargaining power. One direct lender close to this situation said they continue to focus on defensive sectors such as healthcare, technology and telecommunications.

Permira, Pemberton and CS declined to comment. Cinven did not respond to requests for comment.