Chinese packaging company HCP, which was acquired by private equity firm TPG in 2012, is tapping US institutional investors with a $380 million covenant lite loan financing.
The Shanghai-based company is the latest to try the US market, following another packing company Goodpack, which is courting investors in the US and Asia for its $720 million term loan to fund KKR’s leveraged buyout.
Bank of America Merrill Lynch, BNP Paribas and Citi are mandated lead arrangers for HCP's loan. Citi is the lead left.
The institutional US investor market offers far greater flexibility for borrowers as well as longer tenors compared to Asia's bank-dominated loan market. “Such loans are becoming more popular because the US market allows for a higher level of leverage and allows for a structure that is more borrower friendly,” said one person familiar with the deal.
However, it is clearly still a niche product and many such loans have been undertaken by companies backed by US private equity players, which US investors are familiar with.
“We have seen a couple of Term loan Bs, with Asian borrowers tapping the US market, but whether this is a rising trend remains to be seen,” said Gerwin Ho, senior analyst at Moody’s.
The $380 million financing includes a $230 million first lien seven-year loan, a $50 million first lien five-year revolving credit facility and a $100 million second lien eight-year loan. Moody’s has rated the seven-year piece and revolving credit facility B2 and the eight-year piece B3.
It noted in a report that the ratings benefited from asset pledges and guarantees from "all substantial subsidiaries, excluding HCP's Chinese subsidiaries."
The price talk on the $230 million seven-year piece is 375bp over Libor. There is a 1% Libor floor, which means that, on the interest payment date, investors will receive a margin over the higher of 1% or the prevailing Libor rate. The loan is offered at 99.
The price talk on the $100 million second lien is Libor plus 725bp to 750bp. There is a 1% Libor floor and the loan is offered at 99. Loan syndication launched on Tuesday and the loan is expected to close end next week or early the following week.
The proceeds from the loan will be used to repay an existing term loan and to upstream dividends to TPG. HCP is a plastic packaging company that designs and makes packaging for cosmetic and skin care products. Its customers include Estee Lauder, L’Oreal and P&G and it has five production facilities including three in China, one in the US and one in Mexico.