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| Schaeffler | |
| Size | €8 billion senior secured refinancing package |
| Date | February 2012 |
| Mandated lead arrangers | BNP Paribas, Commerzbank, Deutsche Bank, HSBC, JPMorgan, LBBW, Royal Bank of Scotland, UniCredit |
| Global coordinators and managing bookrunners | BNP Paribas, Deutsche Bank, HSBC and JPMorgan |
| Lead bookrunners for bonds | Commerzbank, LBBW, RBS, UniCredit |
| return to the Global Deals of the Year index | |
Reflecting on the jumbo senior secured €8 billion refinancing package for Schaeffler, a German auto parts supplier, an investor says: “While exposure to the cyclical automotive sector would have normally have made this a nonstarter, the diversity offered by a new European levered corporate deal combined with an ebitda of €2 billion-plus made it a must-do.”
Schaeffler’s refinancing, completed in February 2012, certainly offered diversity and exposure to healthy corporate earnings. Beyond that, though, the entire package also had everything in it from structural complexity and innovation, to execution in multiple products across two markets, and a watershed moment for European high-yield investors to boot.
Mix in to all of that the company’s ambitious recent history, and the refinancing is not just a standout deal, but also a positive end to a saga in which Schaeffler seemingly lost its bearings.
In 2008 the family-owned company triumphed in its hostile and audacious €12 billion takeover of Continental, a German tyre and auto-parts maker three times its size at the time.
However, while the company showed deftness in its manoeuvring of the bid and completing the acquisition, it did so supported by billions of euros of bank loans, which, fast forward a few years, started to weigh heavily on the company’s capital structure. This year some €7 billion of these loans were to come due, so the company needed to seek a rapid refinancing solution.
Olivier Cebelieu, head of corporate acquisition finance at BNP Paribas, which along with Deutsche Bank, HSBC and JPMorgan led the refinancing, says that Schaeffler is a very solid business that just had a debt problem, “due to their unluckily timed takeover bid for Conti in 2008 and the financing amounts raised in connection with that bid.”
However, a refinancing of the size that Schaeffler needed was never going to be completed entirely in the bank loan market, given the capital constraints banks are under, so liquidity would have to be sourced elsewhere.
The high-yield bond market was the best option, and in February Schaeffler managed to sell an upsized €2 billion equivalent of five-year and seven-year dollar and euro bonds, establishing the company as the largest inaugural dual-currency high-yield bond issuer since the onset of the financial crisis.
The bonds, in four tranches, were priced by BNPP, Deutsche Bank, HSBC and JPMorgan, as global coordinators and managing bookrunners. Commerzbank, LBBW, Royal Bank of Scotland and UniCredit were lead bookrunners.
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| Schaeffler and its banks engineered a landmark refi |
Concurrently, and as part of the refinancing, Schaeffler also secured a dual-currency €1.4 billion institutional term loan – the largest ever issued by a European borrower. There was also a €3 billion three-year term loan B, a €1 billion revolving credit facility and a €600 million five-year term loan C. “The Schaeffler deal is a brilliant example of using the maximum amount of liquidity we had available at that time,” says Charlotte Conlan, head of EMEA loan origination and sales at BNP Paribas. “In the European institutional market in particular, it is rare for a corporate, non-sponsor deal to attract institutional liquidity, due usually to pricing. However, in this deal it was exactly what the institutional market wanted because of the desire to be able to diversify portfolios into non-LBO debt.”
On the bond side, the inclusion of a one vote per euro enforcement in the documentation was particularly attractive to bond investors because it means they are truly pari passu with bank lenders – a landmark development.
Indeed, despite ranking alongside senior secured bank lenders in recoveries, senior secured high-yield bondholders do not have the same restructuring votes or information disclosure in Europe as they do in the US, a fact that has frustrated many regional investors.
However, Schaeffler’s €2 billion of bonds were the first in Europe to give full, proportional voting rights in any restructuring to bondholders.
“It is a deal that really changed the pattern,” says Paolo Grassi, head of leverage, loan capital markets, at BNP Paribas. “The balance of power has always slightly been on the loan side. For a deal like this, though, we needed the bond market to be there to make it happen. If the loan market hadn’t accepted it, then the deal would simply not have happened. So the balance of power has shifted, and people will say that was the deal that set a precedent.”
He adds: “We also introduced a mechanism that provided balanced voting rights to the various categories of investors across senior loan and bond, which added an extra layer of complexity to an already complex deal.”
In the end, Schaeffler’s deal was a blowout success that the family-owned company itself has won plaudits for, and particularly in the way it managed its banks and engaged in what needed to be done. It bodes well for a return to the capital markets.
Douglas Clarisse, managing director, high yield capital markets, Europe, at HSBC, says: “Schaeffler were very focused on making sure this deal went well, not least because it is part of a longer-term strategy to ready itself for further capital markets access in the future.”
