Key Takeaways
- Boots has raised its dollar-denominated term loan to US$1 billion while reducing its bond issuance.
- The total term loan package is now US$3 billion-equivalent, with a significant cut in the bond component to €1.25 billion-equivalent.
- Strong investor demand has led to tighter pricing for all loan tranches, enhancing refinancing flexibility.
Key Developments in Boots’ Financing Strategy
Boots has adjusted its financing strategy to support its acquisition by Sycamore Partners, increasing its dollar-denominated term loan to US$1 billion. This move accompanies a reduction in the planned bond issuance, reflecting current market dynamics.
The revised debt structure indicates a marked shift towards loans. The total term loan component has risen to US$3 billion-equivalent, enhancing the leverage for this acquisition, up from the initial US$2.25 billion. Conversely, the bond issuance has been trimmed to €1.25 billion-equivalent, which will be issued in a blend of euros and sterling. Notably, the tranche for dollar bonds has been eliminated altogether.
Investor interest in the loans appears robust, as evidenced by recent price adjustments across all three loan tranches. The updated pricing guidance now includes:
– USD loans priced at 350–375 basis points (bps) over SOFR, a reduction from the previous 375–400 bps.
– Euro loans at 350–375 bps over Euribor, down from 375–400 bps.
– Sterling loans at 475–500 bps over Sonia, reduced from 500 bps.
Both the loans and bonds are set to mature in seven years. However, the term loans include a soft call option after six months, offering Boots the potential for earlier refinancing. In contrast, the bonds are non-callable for a minimum of three years, restricting early repayment options.
This financing shift is strategically aligned with the current market trends, showcasing a growing investor preference for leveraged loans that have recently outperformed bonds. Such an approach provides Boots with greater refinancing flexibility, a critical consideration in today’s tight pricing environment and active capital markets.
JPMorgan leads the syndication for the term loans, while Goldman Sachs manages the bond offering, reflecting their roles in executing this significant financial maneuver.
The revised financing strategy underscores Boots’ efforts to optimize its capital structure and tap into the current favorable conditions for leveraged lending, setting the stage for a successful acquisition process. Source: Bloomberg
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