LONDON Oct 1 Banks are pushing ahead with plans to raise around 200 million euros ($223.12 million) to finance German lift components maker Witturs merger with Italys Sematic Group despite volatile markets and concern about Witturs exposure to China, bankers said on Wednesday.
Credit Suisse is leading the underwritten debt financing with Barclays and Deutsche Bank, which is currently being pre-marketed to a small group of loan investors.
The three banks are trying to raise as much of the financing in the leveraged loan market as possible to avoid tapping the high-yield bond market, which remains all but closed after Septembers global market volatility pushed prices wider.
Wittur, its private equity owners and the arranging banks may have to pay up to issue the new loan as the companys existing loans and bonds are trading at a significant discount in the secondary markets.
The debt is trading low, so any new debt will have to be attractive to buy, otherwise you can buy it cheaper on the secondary market, one of the sources said.
Witturs 195 million euro term loan B was quoted at 96.25 percent of face value in Europes secondary loan market on October 1, according to Thomson Reuters LPC data.
Witturs 225 million euro senior notes were quoted at around 88.5 percent of face value on the secondary market, sources said.
Witturs private equity owner Bain Capital and Sematics joint owners, Carlyle and the Zappa family agreed to transfer a controlling interest in Sematic to Wittur in August.
Carlyle and Zappa have retained a stake in the combined company.
Witturs year-to-date revenue was 393.6 million euros in August 2015, up 17.5 percent on the same period of 2014. Earnings also grew 17.5 percent to 58.8 million euros in the same time, thanks to solid business in Asia and growth in Europe, the company said on September 30.
Wittur could struggle to match 2014 full year sales of 521.9 million euros and EBITDA of 75.5 million euros as Chinas slowing economy is hitting the construction sector, bankers said.
On Wednesday, the company reiterated previous guidance that sales and adjusted EBITDA will be above 2014 levels.
Low secondary trading prices mean that the arranging banks could have to offer incentives to investors to make the paper more attractive than current secondary levels, including discounts or higher pricing, bankers said.
As the loan has been underwritten, the arranging banks are on the hook to give the full amount of debt to Wittur.
Loans typically include flex language to cover changes to a deal but significant changes can potentially reduce or wipe out banks returns.
If the new debt is going to be in line with existing debt, it will have to be sold at quite a big discount, a second source said.
Some investors are calling for Witturs private equity owners to put more equity into the deal to reduce the size of the debt and cut leverage to make the deal more attractive to investors, the sources said.
Witturs acquisition of Sematic, which has a strong presence in Europe, is also expected to dilute and diversify its Chinese exposure, giving a stronger credit story.
The Sematic acquisition will result in a more balanced regional diversification based on the higher share of European business, thereby substantially reducing the China/Asia share of revenues, Yara Kes, Wittur spokesperson, said.
Greater awareness of merger synergies could also boost Witturs secondary trading price, some bankers said, although others remain unconvinced.
Carlyle was not immediately available to comment. Bain and Credit Suisse declined to comment. ($1 = 0.8921 euros) ($1 = 0.8964 euros) (Editing by Tessa Walsh)