The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

LBO sponsors introduce clause for concern

Conditions attached to buy-out completion is more a sign of desperation than discernment.

Two recent LBOs in the US market, the $1.3 billion buyout of retail company Linens ‘n Things by Apollo Management and the $1.8 billion buyout of school supplies company School Specialty by Thomas H Lee partners and Bain Capital, have both been structured to give the sponsors a way out.

The School Specialty deal fell apart in October, partly because the sponsors inserted a rare clause in the buyout agreement that made its completion contingent on extremely favourable financing conditions. The sponsors could get out of the deal if Libor went above 4.5% for three consecutive days between September 15 and October 30. The Citigroup high-yield index spread could not go over 430 basis points for three consecutive days in that period either. The weakening of the leveraged markets, and particularly the high-yield bond market during that time, allowed them to walk away.

Margins must have been tight for the deal’s success to be conditional on the leveraged market providing such cheap financing, as it has done for much of this year. But it could also indicate that the sponsors were not convinced of the merits of the company and wanted an excuse to get out of the deal between announcement and completion if its financial performance got any worse.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree