Packaging company Goodpack, which is being taken over by US private equity firm KKR for $1.4 billion, has held meetings with investors in Singapore this week over a $720 million term loan.
Having tested demand in Asia for high-yielding loans that offer no financial covenants, the Singapore group is now due to meet with US investors next week as it seeks debt finance to help fund KKR's leveraged buyout.
The loan package comprises two tranches – a $520 million unsecured seven-year Term loan B and a $200 million second lien eight-year piece – neither of which have financial covenants.
A “Term loan B” is a facility that is predominantly sold to non-bank institutional investors in the US and Europe. Such loans have longer maturities and bullet repayment schedules and are usually bought by asset managers, mutual funds and funds that pool collateralised loan obligations. A second lien is a subordinated loan that offers investors a higher coupon in exchange for higher risk. Moody's has rated the second lien B3, one notch below the Term loan B.
“The term loan B is 100% a US product but we think this is an opportunity to educate investors in Asia and we are hopeful we can get some distribution in Asia,” one person familiar with the deal told FinanceAsia.
In addition, there is an $85 million five-year revolver loan and a $30 million five-year letter of credit facility, which are subject to financial covenants.
Morgan Stanley is left lead on the Term loan B and Credit Suisse is left lead on the second lien. The joint lead arrangers for both tranches are Credit Suisse, Morgan Stanley, DBS, Goldman Sachs, KKR Capital, Macquarie, Mizuho and Natixis.
The loan is being raised as a result of KKR's $1.4 billion leveraged buyout of Goodpack, with KKR set to fund the remainder through a $680 million equity contribution and cash on hand, according to a Moody's report.
The amount of debt used for most buyouts in Asia is about three times debt-to-Ebitda but KKR is using more aggressive leverage levels that are double that and closer to US standards.
In the report, Moody's senior analyst Brian Grieser said that the B2 rating on Goodpack's parent company reflects "the high leverage employed by KKR to execute its leveraged buyout of Goodpack, which will result in adjusted debt-to-Ebitda of around 6.5 times and debt-to-revenue of over three times at close."
The so-called Term loan B is a niche product that has begun to emerge in the region. This year, Australian company Nextgen, which is owned by the Ontario Teachers' Pension Fund, refinanced its leveraged buyout by tapping the Term loan B market, as did Bobcat, a US forklift company that was bought by South Korea's Doosan Infracore in 2007.
Credit Suisse, Morgan Stanley and Goldman Sachs advised KKR on its acquisition of Goodpack. Goodpack provides bulk cargo packaging and logistics for customers that operate in the rubber markets. It has operations in more than 70 countries.