“It is a typical deal in the post-Ukraine [invasion] era that ended as any other process in the last year,” said the source close. ”There was an intention to do a general syndication but fan from pre-marketing was strong enough to place it privately in full.” 

According to all the sources, two direct lending funds took a chunk of the €2.42bn privately placed debt. The rest was placed between more than 30 traditional accounts including credit opportunities funds, CLOs, mark-to-market funds, SMAs and couple of banks orders. 

The €1.15bn euro tranche and the $1.41bn dollar piece both priced on April 6 with a 90 OID and at 550bps margin over Euribor and SOFR, respectively. Sponsor Advent has retained the $488m TLB2 tranche, with the interest on their portion able to be paid as PIK. The transaction was marketed off 4.3x senior secured leverage.

Most notably, the big private credit ticket helped to clean up the terms for the remaining investors. “The orders from private credit had a lot of appetite and, to our benefit, changed a lot of the documents that were not initially kind,” said the source familiar.

“Generally, the risk of prolonged exposure to market is evenly balanced between upside and downside, but still skewed for downside, so sponsors are now more looking for certainty of execution,” said the source close. 

Participants in the deal welcomed the private credit influence. “Everyone got a 90 OID and the allocations they wanted, as I’ve heard,” said the first source familiar. “We wanted to go to 87-89, but were not the moving needle at all, once the two anchors settled on the price, it was decided.”

Some lenders were cautious about playing a chemical name this late in the cycle, but at the end there were only few declines, said the source close. 

For a B2/B+/B+ credit it still pays around 3% more than similarly rated names in the market. “We felt we needed to go in,” said the source familiar. 

Tail ahead

Envalior supplies mainly parts for automotive sector and has three divisions: performance materials, specialty materials, and intermediates. Two tailwinds should support the scope for growth, said the sources close and familiar. 

“Even with high energy price headwind it was growing way over GDP,” said the source familiar. “It ticks a lot of boxes and there is scope for more growth.”

Push to electrification and sustainability should give long-term support as Envalior makes materials used in batteries and charging systems and also cheaper lightweight elements that replace metals in structures, which provides carmakers savings on CO2 emissions. 

Lenders praised the big equity cheque from Advent meaning that the sponsor has a lot of skin in the game. The sponsor also has a good reputation with chemicals businesses. Merger incentives were complimentary, making the company number two as its market consolidates and with a lot of potential to extract synergies.

A new era for syndication?

The participation of private credit in a traditionally syndicated LBOs could be the first of many, according to the market source. “It’s yet again evidence that we’re at the bottom end of the high yield and syndicated market, and syndication will be less than it was.”

The source pointed to the lack of bank appetite to underwrite large syndications, as well as 2022’s hung deals. In this environment, there is a price to pay for some kind of deal certainty, he said.

“Who knows, it could evolve into two different tranches in future syndicated deals: one for the anchor investors and one for the rest.”

Barclays, BNP Paribas and UBS were the physical bookrunners on the deal. 

Advent, Envalior and UBS declined to comment. Barclays did not respond to a request for a comment by the time of publication.