German Finance Market increasingly influenced by US market dynamics, increasing debt fund activity and refinancing opportunities WIESBADEN, JULY 2013 German LargeCap Market influenced by US capital market dynamic - higher leverage and looser covenants An increasing number of German borrowers seek financing in the US and high-yield markets lured by fewer covenants, higher leverage and more bespoke risk-pricing. Several new Debt Funds were raised recently, such as BlueBay s EUR 800 Mio. final close for its Direct Lending Fund (Senior and Subordinated Loans). Driven by liquid capital markets and the continued low interest rate environment EquityGate expects a growing number of refinancing and dividend recaps during the balance of 2013. The German LargeCap SBO Armacell, sponsored by Charterhouse, was debt-financed with EUR 394 Mio. by HSBC, Credit Suisse and BNP Paribas, with US loan market involvement. Another example of German companies seeking finance in the US is CeramTec.The LargeCap LBO Ista (Equity-Sponsor CVC) arranged by Deutsche Bank shows that German banks are comfortable with higher leverage and looser covenants. (around 7.25 x EBITDA)). Bains secondary buy-out acquisition, FTE Automotive, will be supported by high-yield bonds and a small portion of leveraged loans. The deal is expected to be completed in July 2013. EquityGate expects a growing number of refinancing and dividend recaps for the rest of 2013. Robert Rügemer (Head of Debt Advisory & Restructuring) The German financing landscape is continuing to be enriched by (mostly high-yield) debt funds, like BlueBay s fund for senior and subordinated Loans. In Q1/13, for the first time in recent German MidCap LBO market history, MidCap LBO transactions are being financed by debt funds. 1
Debt Funds on the rise in German MidCap LBO Market Recent examples are: Deutsche Fachpflege, sponsored by Chequers Capital, financed by Ares Der grüne Punkt / DSD (refinancing), sponsored by KKR, financed by BlueBay CPL Cartonplast, sponsored by Stirling Square, financed by BlueBay and HayFin Among the most active banks were UniCredit, Deutsche Bank and Commerzbank, both by volume and number of deals. The leveraged loan market still shows a high portion of refinancing. EquityGate expects a growing number of refinancing and dividend recaps for the rest of 2013 especially in the German MidCap, market due to active deleveraging and existing term loans becoming due in the next couple of years. Nearly all LBO financings in the German MidCap LBO market were Club-Deals (except the above listed debt-fund deals). Deal flow in the German MidCap LBO market was quite strong for Q1/13, and EquityGate expects a similar deal flow for Q2/13, which will be below the deal numbers and debt volumes seen in Q3/12. Margins in the German LBO Market range between 400-450 bps for a Term Loan A (Tenor 6 years) and 475-525 bps for a Term Loan B (Tenor 7 years). Total Leverage for new acquisition financing tends to be around 5.0 and Senior Debt Leverage lies at 4.0 (with exceptions on recent individual deals, e.g. Ista). Leverage Trend Germany Senior- / Total-Debt / EBITDA 6x 4x 5,0x 4,0x 2x 2007 2008 2009 2010 2011 2012 1Q13 Total Leverage Senior Leverage Source: Thomson Reuters, EquityGate research Trend volumes / margins bn bps 30 28 600 25 500 500 20 425 400 15 300 10 6 6 200 4 5 1 1 1 100 0 0 2007 2008 2009 2010 2011 2012 1Q13 LBO volume Margin TLA Margin TLB Source: Thomson Reuters, EquityGate research 2
Selected German Largeand MidCap LBO Deals May 2013 Apr. 2013 Feb. 2013 Target Ista Armacell Fachpflege Sponsor CVC Charterhouse Checkers Capital MLA Deutsche Bank BNP Paribas, Credit Suisse, HSBC Tranches Volume (in EUR m) Margin (in bps) Total leverage Tenor (in years) Comments Term loans and subordinated loans Senior and second lien Ares 2,325 350 75 400-500 (Senior), 687.5 (Subordinated) Unitranche n/a 500 (estimate) 7.25 5.00 5.00 6-8 6-8 6 Loose covenants, buy-back from Charterhouse SBO from Investcorp Amortisation starting after 3.5 years Selected transactions Financial Advisor on the restructuring and refinancing of 260m of financial debt with 19 lenders EquityGate acted as financial advisor Financial Advisor on restructuring of 380m across debt, mezzanine and equity tranches, settlement of EPCcontract, and buy-out of minority shareholder of RDF power plant Capital provided by Financial Structuring Advisor and on 145m raising bank of financing 800m for investment refinancing and facility working capital purposes Debt provided by 14 banks Mandated Lead Arrangers and Bookrunners: EquityGate acted as sole Financial Advisor to Wohnbau Mainz GmbH Strategic and financial review incl. the development of a restructuring concept Financial Advisor on a 570 m Senior Debt package for the construction of a paper machine and a corrugator Mandated Lead Arrangers Structuring and raising of 800m refinancing facility Debt provided by 14 banks Syndication Banks EquityGate acted as sole Financial Advisor to Wohnbau Mainz GmbH Financial Advisor on the debt financing package for a production hall, machinery and equipment in relation to a 75 MW production facility 600m CMBS refinancing Financial Advisor on 44 m operating lease for the set-up of the New Logistics Center Mandated Lead Arranger Debt provided by: EquityGate acted as Financial Advisor to the company 3
Case Study Istrabenz EquityGate has advised on one of the largest successfully restructured transactions in Slovenia and CEE EquityGate has advised Istrabenz d.d., one of the largest Slovenian holding companies, listed at the Slovenian Stock Exchange with activities in the sectors Energy, Tourism and Information Technology as well as other investments on the financial restructuring and refinancing of an outstanding debt volume of approximately 260 m with 19 lenders Challenging transaction background: The restructuring required 100% consent from all lenders to Istrabenz and had to include a long term solution based on a deteriorated cash flow profile Due to maturity of the compulsory settlement, the execution of a restructuring agreement was required within six months Simultaneous negotiations with 19 lenders on Istrabenz Holding and subsidiary levels Comprehensive strategic review of three main subsidiaries and Holding financing structure EquityGate was able to structure the debt with an extended maturity and implement a new amortization waterfall thereby stabilising the company and accommodating all lenders. The new financing was successfully structured in two tranches with 5 years and 10 years maturity. The new agreement executed with the lenders represents a basis for the company's long-term solvency whereas its successful implementation will enable a further debt reduction and a possibility of its continued existence. Robert Rügemer, Head of Debt Advisory & Restructuring, EquityGate 4
We bring experience, capacity and international reach for our clients in critical transactions Our services: Financing & Restructuring Concepts: analysis of saleability as an alternative to the extension of the balance sheet, financial analysis and planning, cash-flow modeling, Pre-/post-money review & analysis of debt capacity, financial structure and choice of financing instruments, Pilot Fishing & Feasibility, Indicative terms Restructuring or renegotiating debt covenant waiver and reset negotiations, trading downturns, credit rating downgrades, facility extensions and amendments, new money requests and debt buy backs Refinancing maturing debt facilities, new debt markets, syndicated borrowings, asset based financing, off balance sheet financing Acquisitions, disposals & mergers acquisition financing, merger financing. strategic advice on financing objectives; Reviewing capital structures; Detailed financial modelling and credit assessment; Rating agency advice; Assessing the available sources of finance; Advice and execution resource to facilitate the approach to finance counterparties; Currency, interest rate, commodity and credit default hedging advice; Negotiation of lenders' proposals and finalisation of detailed terms and conditions; and Coordination with the client s legal advisers to ensure successful completion Our strengths: Selection of a value-adding financing structure Independent review of market conditions and terms International access to investors and banks Understanding and focus on relevant criteria About EquityGate Advisors EquityGate Advisors is a leading financial advisory boutique in the German-speaking countries and the CEE-region. We provide advice on complex financing transactions (investment and acquisition financings), financial restructurings as well as mergers and acquisitions. EquityGate was awarded multiple times for its outstanding advisory services by professional institutes and industry experts. For example: "Corporate Finance Boutique Firm Germany of the year 2013 and 2012 by Finance Monthly Magazine, European Boutique Investment Bank of the Year and European Financing Restructuring Advisor of the year at the M&A Advisor International Awards, and Equity Financing Deal of the Year Europe at the Global M&A Advisor Awards. Furthermore, in 2009 it was named as one of the Top 10 Debt Advisors by FINANCE magazine. EquityGate is partner of Mergers Alliance, a world-wide group of awardwinning corporate finance specialists with 250 professionals, offering global sector know-how, instant access to leading strategic and financial investors, uniform execution standards and top-notch resources in Asia, Europe and America. Over the past 12 months, our group has collectively completed over 130 deals in 30 countries worldwide with an aggregated value of over $10 billion. www.equitygate.com 5
Robert Rügemer Managing Director Head of Debt Advisory & Restructuring Phone: + 49 611 205 48 21 Email: ruegemer@equitygate.de Manuel Eckel Vice President Debt Advisory & Restructuring Phone: + 49 611 205 48 18 Email: eckel@equitygate.de EquityGate Advisors GmbH Mainzer Straße 19 65185 Wiesbaden Telefon: + 49 611 205 48 10 Fax: + 49 611 205 48 20 www.equitygate.com 6