LONDON, June 1 (LPC) - A trio of banks are lining up around €3.5bn (US$3.89bn) of debt to back a takeover bid for Spanish telecoms company MasMovil, reopening the leveraged buyout market as the first deal to be underwritten since the March lockdown, banking sources said.

KKR, Cinven and Providence said on Monday they had agreed a bid for MasMovil, equating to €22.50 per share.

It gives the company an enterprise value of around €6bn and is the first European take-private attempt by major buyout firms since the coronavirus crisis struck.

Morgan Stanley, Barclays and BNP Paribas have underwritten the financing, the first since the pandemic put Europe in lockdown. Other banks are likely to join the lender group at a later stage, the sources added.

It will be an all senior financing funded with leveraged loans and high yield bonds, banking sources said.

It is expected to receive a high single B corporate rating and leverage will total around 4.0 times, the sources added.

“This is the first real post Covid-19 underwrite. While it is large, it is a known company with a strong rating and as such it perfectly qualifies to reopen the market,” a syndicate head said.

The financing is expected to comprise around €1.5bn of leveraged loans and some €2bn of high yield bonds as the company utilises its existing leveraged loan investor base. MasMovil has a €1.45bn term loan B, raised in 2019.

“The existing capital structure provides a decent reference point for the loan component of the deal,” a senior banker said.

The syndicate head added: “They’ll be new loans but existing loan investors can go into the new structure, then there will be bonds because there is much more liquidity in the bond market right now especially around B1.”

The bonds are expected to launch towards the end of the year but the loans could launch sooner, depending on market conditions, the sources said.

It is expected to be positively received by investors as the market stabilises and they look to put money to work in new deals.

“People will be super excited; it is a large transaction giving proper new primary supply to the loan and bond market,” the senior banker said.

“It is in a sweet spot from a ratings standpoint and as it has been relatively unimpacted by Covid, it has a lot of different things going for it. As a deal to reopen the underwriting market in Europe, it’s a nice one”.

Banks have made adjustments to underwriting terms to take account of a widening in the market since the Covid-19 crisis struck.

While the financing will be covenant-lite and include flexibility in the documentation, pricing will come wider than where the market was pre-crisis.

In general, pricing has widened around 150bp since the start of the year for stronger names. It has widened even further on credits more exposed to the pandemic.

In addition to wider pricing, flex has also increased and will be a feature on all underwrites in the foreseeable future.

Lenders can now expect to receive flex of around 175bp-200bp, compared to flex of around 125bp-150bp pre-Covid, sources said.

“For a low single B, flex will be even wider,” the syndicate head said.

“What matters most is that banks are putting underwriting risk back on the books again which means transactions can happen and it is positive for a market as a whole,” the senior banker said.

“Pricing will just fit into where banks are happy to do it and a level that sponsors are willing to accept it”.

MasMovil has built up a position in the fiercely competitive Spanish market in recent years by buying Pepephone and Yoigo and the bid for it follows Telefonica’s deal to merge its British business with Liberty Global’s Virgin Media.

Shares in MasMovil, which was founded in 1997 and sells fixed line, mobile and Internet services, hit 22.80 euros at 1015 GMT, around 22% higher than their Friday close and making them top gainers on Spain’s main index.

The bid for MasMovil is conditional on acceptance from at least 50% of shareholders and around 29.56% of MasMovil’s stock has already agreed to sell. ($1 = 0.8989 euros) (Editing by Alasdair Reilly)

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