financing growth


Alternative financing options have proliferated in recent years,
enabling companies to fund projects even as traditional bank lending remains
tight. An increasing variety of formerly minor or untested debt instruments
are becoming mainstream as a result, changing debt markets for good.

Beyond the banks: The rise in alternative financing

Although conditions for borrowers are looking increasingly positive, commercial banks have not been lending as freely as they did before the liquidity freeze that began in 2008. Consequently, borrowers have sought alternatives, and there has been a range of options from which to choose. High yield bonds, asset-based lending and debt from credit funds have all been widely available, leading many to believe that even as traditional loan liquidity has revived, alternatives to senior debt from banks have become an established part of the market.

The rise of credit funds and the revival of high yield bond markets have particularly benefited European borrowers. With a new mindset and a desire to find the best terms available, regardless of the source, the eyes of European borrowers have been opened to the highly liquid US term loan market. Investors in the US term loan market are hungry for yield, and European borrowers have found the pricing and covenant-lite (“cov-lite”) terms on offer attractive. The private placement market, which allows issuers to avoid the reporting requirements of listed high yield bonds, has made raising debt in the United States even more appealing for European borrowers. Consequently, the European loan market has found itself needing to compete on terms with new rivals and has adopted cov-lite features to a degree not previously seen.

With borrowers now focused on obtaining the best available terms, and more comfortable with a variety of financing providers, credit funds have been putting money to work at great speed. Their willingness to consider any type of structure and to build pricing, cash/payment in kind (PIK) coupon and covenant structures around a credit rather than around the market—combined with the borrower having access to a debt partner that moves swiftly and decisively with regard to amendment and consent decisions—makes credit funds very attractive.

Alternative forms of finance look set to continue into 2015, offering borrowers a wide variety of products at attractive prices and on favorable terms. As debt markets reopen following the financial crisis, European borrowers have more financing options available to them than ever before.

European and US leveraged loan and bond markets converge, as cov-lite loans increase in number

Until 2014, European lenders resisted the aggressive loosening of covenants for leveraged loans, but 2014 saw a significant shift toward more flexible, borrower-friendly terms that resemble more closely those of high yield bonds. The US market has already seen a convergence between high yield bond terms and leveraged loan terms over the past two years, and there is now evidence that this trend is making its way to Europe.

While there were no domestic European cov-lite loans in 2013, a full 14 percent of European loans were arranged without maintenance covenants in 2014, according to Xtract Research. Indications are that the European market is moving in many ways toward a US-style model, where cov-lite loans have gained a very strong position in the market over the past two years. According to Xtract Research, in 2014, 48 percent of US leveraged loans were cov-lite, double the 24 percent seen in 2013.

This change has been driven by competitive pressure from high yield bonds, which saw record issuance value in Europe during 2013, investor appetite for European exposure and a resurgence of collateralized loan obligation (CLO) issuance in Europe (which was much slower to restart compared to the United States). While third-quarter 2014 volatility witnessed a slight shift back in favor of investors, the indications are that though cov-lite issuance may have taken a pause, this has become a more standard feature of the European market.

“As CLO issuance continues to grow in Europe, and as this capital is increasingly managed by people who operate on both sides of the Atlantic, cov-lite deals will continue to get done in Europe,” said White & Case partner Jake Mincemoyer.

While the European cov-lite phenomenon is developing, there have still only been a relatively small number of cov-lite deals completed and therefore set standards have yet to emerge. In the United States, by contrast, the greater maturity of cov-lite means that strong precedents have been set, allowing borrowers to push on terms previously agreed upon in other deals. “In Europe, we’ve not yet seen deals done with the full package of high yield-style flexibility you would see in the United States, although this will creep across the Atlantic in 2015,” said Mincemoyer.


We advised the lead arrangers on the financing for the Bestway Group’s acquisition of the Co-Op Pharmacy. The £725 million all-senior loan financing included a £425 million term loan B that was allocated to institutional investors. Bestway Group is a UK-based family-owned conglomerate that includes the UK’s second-largest independent wholesaler, Bestway Wholesale.


We advised Deutsche Bank, as global coordinator and agent, on the refinancing of the existing financial indebtedness of the French-based DELACHAUX Group.


We represented Jefferies Finance LLC, as administrative agent and joint lead arranger, in a US$530 million senior secured term loan facility and a US$60 million senior secured revolving credit facility to finance, in part, the acquisition of Medpace Holdings, Inc. by various funds managed by Cinven Partners, LLP. Medpace Holdings, Inc. is a global contract research organization that provides management services to R&D departments of pharmaceutical, biotech and medical device clients.


We represented Jefferies Finance LLC, as joint lead arranger, administrative agent and collateral agent, in the financing of the acquisition of Santarus, Inc., by Salix Pharmaceuticals, Ltd., both specialty pharmaceutical companies. The financing consisted of a US$1.2 billion senior secured term loan facility
and a US$150 million secured revolving credit facility. The company also issued US$750 million
of senior unsecured notes.

IPOs surge in Europe

Europe experienced strong levels of IPO activity in 2014, led by IPOs in the financial, retail and industrial sectors. In 2014, volume was up by 50 percent and proceeds were up by 82 percent, according to Thomson ONE Banker. All in all, in 2014, 259 IPO issues raised €66.6 billion on European markets.

“Financial sponsor-backed exits were, as expected, a key driver of IPO activity, and look to continue that role into 2015,” said White & Case partner Michael Immordino. Financial sponsors are highly reactive to market trends, and with the equity side performing so well over the past two years, it was expected that they would be leaders in the IPO arena. Private equity and venture capital-backed IPOs accounted for 27 percent of the total IPO volume and 43 percent of proceeds in 2014, according to Thomson ONE Banker.

While IPO activity surged above 2013 levels, investor selectivity grew in the fourth quarter with investor anxiety persisting over geopolitical tensions and variations in the strength of economic performance from country to country on the continent. “In particular, challenges arose in Q3 and Q4 for small and mid-market IPOs, which were the first to feel the effect of market tension,” said Immordino. Long-term structural issues continue to exist in Europe, including the multiplicity of stock exchanges in Europe, which in most cases do not cover many specialist sectors. “Finally, if deflation arises in Europe in 2015, it will reflect itself in the market,” he added.

Nevertheless, 2015 looks to be a healthy year for IPOs in Europe. The European Central Bank has taken steps to support European markets, and the relative value of European equities versus US equities will ensure investors continue to buy into the region.

“Real estate IPOs in Europe will continue to be a trend,” said Immordino. The Middle East and Turkey are expected to be active markets, while Russia will be sharply down. And, with some of the European economies that are struggling, Immordino foresees continued IPO activity with privatization not only at the national level, but regional and local as well.


We represented French credit insurer Coface SA in its €967 million IPO on the regulated market of Euronext Paris. The Coface Group has a direct presence in 67 countries and employs 4,400 people.


We represented DX (Group) plc, an independent logistics operator in the United Kingdom and Republic of Ireland, and a former portfolio company of private equity firm Arle Capital Partners Limited, in its successful IPO and admission to the AIM market of the London Stock Exchange, valuing its group at approximately £200 million.


We advised Axia Real Estate, S.A., a Spanish real estate investment trust, on its €360 million IPO on the Spanish Stock Exchange and private placement to institutional investors under Rule 144A.


We represented a syndicate of banks led by Deutsche Bank, J.P. Morgan, Crédit Agricole Corporate & Investment Bank and HSBC in the €955 million IPO of Elior, a French catering company, on the regulated market of Euronext Paris.

High yield financing flourishes globally

In 2014, a record-high US$550.7 billion of high yield bonds were issued worldwide. As in the past, the United States led the way in issuances, with US$355.2 billion. But it was the Euromarket (including emerging markets) that showed tremendous growth, with a 31 percent jump from US$139.4 billion in issuances in 2013 to US$181.6 billion in 2014, according to Bloomberg’s Global Fixed Income League Tables.

The strength of the high yield bond markets has greatly benefited borrowers refinancing existing bank debt or raising capital for acquisitions. High yield bonds, with incurrence-based covenants, are well-suited to businesses that are cyclical, highly leveraged or capital intensive. Without maintenance covenants in place, temporary reductions in cash flow or deterioration do not automatically result in default. As a consequence, borrowers do not find themselves having to renegotiate covenants or pay fees for
consents or amendments.

Recently, some bond structures have allowed change-of-control “portability,” enabling the debt structure to be carried over if the business owner sells without a requirement that an offer be made to resell the bonds. This provision is particularly sponsor-friendly because it is designed to make a future sale more economical and more attractive to potential buyers. Although portability is not a new concept, it has recently become more prevalent in the market. It remains to be seen whether the feature will become more widely accepted and whether the recent flexibility of the provision afforded to issuers in bond transactions will be translated favorably to borrowers in loan deals. As sponsors are starting to center their focus on more flexible exit options, the portability provision is likely to move to the forefront of negotiations.

Although the US high yield bond market was not as strong in the final quarter of 2014, we represented US energy giant Dynegy Inc. in October 2014 in high yield note issuances totaling US$5.1 billion. This offering was the largest domestic-dollar high yield deal of the year. “In 2015, there should be continued opportunities for companies to take advantage of the benefits of high yield bonds,” said White & Case partner Gary Kashar.

Internationally “there will be a continued convergence of the US and European bank/bond markets in 2015,” said White & Case partner Rob Mathews, and “now that high yield has been fully adopted as a preferred source of financing in the international markets, we expect to see more offerings in new industries and in new jurisdictions.” For example, Mathews noted that 2014 saw the continued expansion of high yield in Western Europe, particularly in Italy and France, and the adoption of high yield financing into new markets, with White & Case working on the first high yield financings in Nigeria and Bangladesh.

Insert Alternate Text Here


We represented Poland-based mobile telecoms operator P4 sp. z o. in its inaugural €870 million and PLN 130 million dual-tranche high yield bond issue and entry into a new super-senior revolving credit facility. As of the transaction day, it was the largest debut high yield bond deal since 2010, the largest Central and Eastern European high yield deal ever, the second-largest European telecoms debut ever and the first-ever Polish zloty-denominated high yield bond issued on the international capital markets.


We represented Wind Acquisition Finance S.A. and Wind Telecomunicazioni S.p.A., a leading Italian telecommunications operator, in a series of high yield issuances totaling €7.75 billion for corporate refinancing purposes.


We represented independent power producer Dynegy Inc. in the issuance of US$5.1 billion in aggregate principal amount of high yield notes. The proceeds were placed into two separate escrows pending Dynegy’s acquisitions of (1) certain of Duke Energy Corporation’s Midwest generation and a retail energy business and (2) EquiPower Resources Corp. and Brayton Point Holdings.


We represented B Communications Ltd. in its innovative debut US$800 million senior secured high yield bond offering, the first-ever internationally marketed high yield bond listed on the Tel Aviv Stock Exchange. B Communications is the controlling shareholder of Bezeq Telecommunications, Israel’s largest communications company.


Bangladesh made its first international bond offer and its first high yield bond offer, opening up the international bond market for other names from Bangladesh to follow. We represented Citigroup Global Markets, Inc. in the US$300 million high yield notes offering by Banglalink Digital Communications Limited, the second-largest mobile telecoms operator in Bangladesh.