BANKS and other lenders are lining up more than 10 billion euros (S$14.3 billion) of debt to back a buyout of Sanofi’s consumer health division, as one of the most highly anticipated sales of the year reaches its final stages.
A core group of banks signed funding commitments over the weekend for 7.5 billion to 7.8 billion euros of senior debt to back bids for the acquisition, sources said, declining to be identified discussing private matters.
They will also give around 1.2 billion euros of revolving credit facility.
Private credit lenders are also lining up around 1.5 billion to two billion euros of junior debt to fund the buyout.
New York-based buyout company Clayton Dubilier & Rice (CD&R) is competing with French rival PAI Partners for Sanofi’s unit, with bids due this month.
The former is being advised by Citigroup, and the latter by JPMorgan Chase, the sources said.
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The debt packages backing both bids are fairly similar, and include a mix of euro and dollar-denominated leveraged loans, and high yield bonds to attract as much liquidity from institutional investors as possible, they added.
While Sanofi did not comment on the financing, a representative reiterated that the company is considering potential separation scenarios for the consumer business, including a sale or a stock market listing, with a decision likely in the next few months.
Spokespeople for CD&R, PAI, JPMorgan and Citi declined to comment.
Banks are eager to return to funding leveraged buyouts, with as many as 15 jostling for the financing on the Sanofi bids.
Such deals are some of the most lucrative operations in finance, particularly after the first US Federal Reserve interest rate cut in four years raised hopes that debt costs are finally starting to ease.
But the risks are still fresh on many people’s memories: Just two years ago, lenders got burned backing big corporate buyouts and ended up with tens of billions of dollars of “hung debt” they struggled to get rid of.
The total leverage provided by banks will likely be six times the unit’s earnings, a level that is fairly high by recent standards.
That figure rises to 7.5 times once the private credit element is factored in. Only slightly more than a year ago, the debt packages lined up by banks to back buyouts were around four times earnings.
Bloomberg News previously reported that New York-based buyout firm CD&R is also in discussions with banks to provide back leverage to fund part of the equity check.
Back leverage is a type of loan that buyout shops can obtain to finance part of an equity investment in a specific company. BLOOMBERG
