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Private Credit 

Josie Shillito

This article is part of our forthcoming service, 9fin Private Credit. If you're interested in a free trial, contact subscriptions@9fin.com

BC Partners’ cancellation of its long-planned £3bn sale of veterinary VetPartners in favour of a refinancing is the latest and largest of the refi-and-wait queue that seems to have taken up squatters’ rights on the territory where an M&A pipeline might usually sit. 

The sponsor has opted to refinance the debt on VetPartners — reported to be €595m when BC Partners made the acquisition in 2018 — with a six-year loan from Ares, 9fin reported, rather than to progress with a sale.

And the sale did not fall over due to a lack of private credit financing. Like a few before it (notably Cotiviti in the US), the lenders were ready to lend. BC Partners had a £2bn soft staple in place with £1.6bn from Ares in the senior and the rest from JP Morgan in the junior ready to go for any willing buyer.

The debt was even priced reasonably, with one source calling it “cheap and deep,” and referring to low six-handle pricing and EBITDA in the range of £150-200m.

But as with many before it, there seemed to be a valuation gap between seller and buyer expectations, and BC Partners has taken the decision to refi and wait to sell the asset. 

However, there is some LBO money on the horizon. Syndication banks and private credit will have to compete for a piece of IRIS Software’s approximately £800m debt to back the software business’s sale by HG Capital. 

A giant piece of debt in a thirsty market, HG will face the usual consideration of whether to have certainty of execution with private credit, or attractive pricing with the syndicated market. The deal’s existing pricing on its TLBs is S+450 bps, while 9fin reported private credit ballpark figures closer to SONIA+800-900bps on junior debt and S+600-625bps on the senior. 

“I think unless IRIS attracts one of those few sponsors who really lean towards the capital markets, it will go private credit,” said a private credit fund (although they would say that, wouldn’t they).

The kicker will be the currency, as GBP is a thin market and some other currencies may have to be inserted in to get the deal away in the syndicated market, 9fin reported.

However, either way private credit is laughing. They can always pitch a slug of second lien even in a broadly syndicated deal, the private credit fund pointed out.

Other notable deals this week include the much-anticipated by 9fin Blackstone healthcare deal of Erogomed. The debt consists of a covenant-lite £200m unitranche and £85m delayed draw term facility (DDTF) to back sponsor Permira’s acquisition, according to the commitment letter.

Marketed off an EBITDA of £35.7m, biopharmaceutical services provider Ergomed’s opening net leverage is 5.34x, priced at SONIA+ 625bps on both the £200m, seven-year unitranche and the £85m, seven-year DDTF. Both carry a 0.75% SOFR floor and 0% on other benchmarks. There is also the option to PIK a portion of the margin so long as the cash pay does not fall below 350bps.

“The interesting thing about this deal is that it shows cov-lite is still available in the right scenarios,” said a legal source. “It’s a £200m unitranche, so of a reasonable size, with a tier-one sponsor, in this case, Permira.” 

Freshfields Bruckhaus Deringer advised the borrowers while Allen & Overy advised the lenders. 

On the matter of lender designation, which often comes up around P2Ps on which its possible to see all advisors on the deal, a second legal source said: “It is much more common for the sponsor and the private credit provider to have a discussion around a few names and settle on one that all agree on.” 

“Often the sponsor discusses with multiple potential debt providers, so the lender counsel that gets appointed is a firm which is acceptable to the sponsor and each prospective lender.”

These comments are in line with 9fin’s recent article on the practice of lender designation. 

Allen & Overy, Permira and Blackstone all declined to comment.

On more P2Ps, Pharmatech company Instem has also been taken private by Archimed with full debt details to be released shortly. 

Blackstone debt details have also emerged for GTCR’s purchase of supply chain management software provider Once for All. As previously reported by 9fin, Blackstone was providing the debt on the transaction. This has now emerged as Blackstone, Golub and HPS Finance for a £180m unitranche, according to a source close to the deal. 

We’re also waiting on the sale of Open GI by Montagu Private Equity, marketed off an EBITDA of £30m with Arma Partners mandated as M&A adviser, the return to sale of education provider Media School, the carve out of consumer insights business WGSN from Ascential, Ipackchem, and debt going into no-frills cremation service Pure Cremation.

Meanwhile, Pictet Asset Management’s European direct lending strategy has provided debt financing to MLase AG, a developer of laser and light systems for medical applications, according to a press release. The sponsor is Maxburg Capital Management.

And lastly, two French LBO deals are being worked on: Harvest, a French wealth manager is readying at €25m EBITDA via Rothschild, and Sogelink, a tech asset through Raymond James, marketed at €50m EBITDA.

Infrastructure and real estate, however…

The reduced M&A deal flow in 2023 certainly has not applied to private credit asset managers own acquisition sprees, which have come into their own in September. 

They are taking a strategic view to expand their financing expertise speedily through acquisition as opposed to building the capabilities in-house, with a slew of announcements of real estate and infrastructure investment assets snapped up and announced by Bridgepoint, CVC and Hayfin this week alone.

Bridgepoint has joined forces with North American infrastructure investor Energy Capital Partners to build itself out into what it claims will be a $57bn alternatives asset manager. 

CVC is acquiring a majority stake in infrastructure manager DIF Capital Partners, hoping to create a global private markets manager with seven complementary strategies and approximately €177bn of total assets under management.

And Hayfin has entered a strategic partnership with GRC IM to finance real estate opportunities in Spain. 

In addition, we have also seen Tikehau’s real estate partnership and Arrow Global’s real estate acquisition.

“The logic is quite obvious,” said a market source. “There are huge opportunities in infrastructure and real estate to become a broader asset manager.” The source mentioned that in some ways real estate is already more consolidated but in Europe particularly, infrastructure investment assets are ripe for the picking. 

So there’s private credit continuing to creep into areas it wasn’t originally in. 

Lastly, in a round up of other European 9fin private credit content this week, we’ve got a deep dive into the private credit fundraising situation, Arcmont’s special situations fund, and an odd LP pushback on a dividend recap in Poland.

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