Netherlands-headquartered hydraulic cylinder-maker Hyva Global will kick off a roadshow for a Reg-S/144a $375 million senior secured bond issue today.
The five-year non-call-three bond will partly finance the €525 million ($750 million) leveraged buyout of Hyva by Asian private equity firm Unitas Capital and Hong Kong’s NSW Holdings at the end of last year. Private equity firm 3i was the seller. The rest of the buyout will be financed by equity and cash on hand.
Hyva is headquartered in the small town of Alphen aan den Rijn, in Holland, but generates about 70% of its revenues from emerging markets, with China and India accounting for 40% and 17% of its revenues respectively. It also has facilities in Brazil, Germany and Italy.
Standard & Poor’s rates Hyva’s proposed issue at B+. The roadshow kicks off in Singapore today, moves on to Hong Kong on Thursday, London on Friday, and New York and Boston the following week, with pricing expected later next week.
The joint bookrunners are Bank of America Merrill Lynch, Goldman Sachs, Nomura and Standard Chartered.
Hyva had considered raising funds through the loan market and, indeed, had already won commitments for a syndicated loan underwritten by the lead banks. However, according to one loan banker, that deal is on hold for the moment, pending feedback from investors on the bond deal.
“If the company can raise $375 million from the bond, then clearly the loan won’t go through,” said one loan banker. “But bond markets are much more sensitive to market conditions than loan markets so a lot will depend on investor appetite.”
Based on early indications, bringing a high-yield deal like Hyva could prove challenging. “We will take a look, but I am not that keen,” said one investor. “It will take a bit more work to understand the sponsors/equity investors, the loan from the leads and the usefulness of the guarantee. I think subsidiaries accounting for just 25% of the group’s cashflow are guaranteeing the bond.”
The company opted for a bond because it offers greater flexibility. “There are attractions for the issuer; there is no maintenance of financial covenants, no amortisation, but they will have to pay more for that flexibility,” said one bond banker.
Another banker not involved in the deal said Hyva will have to pay a yield in the high single digits. In comparison, the margin on the loan was 4.5% over Libor.
Assuming the bond deal is fully placed, it will be the first leveraged buyout from Asia not to be funded through the loan markets. As the Asian high-yield bond market matures, more issuers are choosing to take advantage of the bond market, which has less stringent covenants compared to the loan markets.
Bond-backed LBOs are more common in Europe and the US, where companies such as Air Medical and Associated Material (in the US) and Oxea, Care, Picard and Interxion (in Europe) have all recently completed deals.
“As the Asian high-yield market matures, the push-pull between the bank and bond market is becoming more evident,” said the bond banker.