PEP-owned Hoyts seeks US debt financing

Hoyts wants to raise $310 million through a seven-year, first-lien, senior secured bank loan and a further $100 million in second-lien financing, due in seven-and-a-half years, Bloomberg reported. There will also be a revolving credit facility of A$40 million ($40 million). The company expects to pay interest of around 3.5% and 7.5% on the first and second lien pieces, above a Libor benchmark of 1%.

According to AVCJ Research, PEP paid A$440 million (then $396 million) for Hoyts in 2007 and has since supported it in several roll-up acquisitions of smaller cinema chains. It manages approximately 450 screens across 55 cinema completes in Australia and New Zealand. PEP explored an IPO for Hoyts in 2011 before shelving plans due to market conditions.

Private equity investors talked up the potential of using the US for debt financing at the AVCJ Australia & New Zealand Forum in March.

"If you can access the US market that opens up more opportunities than we have seen in recent years because we can do larger financing and larger deals," said Justin Reizes, managing director at KKR Australia. "The pipeline is looking better than it has done for several years, with a number of corporate carve-outs coming. If you get similar leverage levels to the US it opens up public-to-private opportunities as well."

In the five months to March, Australian companies raised a record $6.2 billion in high-yield debt via the US markets. This includes about $700 million in Term Loan B financing obtained by hedge funds Apollo Global Management and Oaktree Management to support the restructuring of Nine Entertainment after creditors assumed control of the media company from CVC Capital Partners.

The US market is institution-led - as opposed to a bank-led structure in Australia - and seen as slightly more aggressive. It offers higher levels of leverage on better terms and greater capacity in areas such as subordinated debt financing where Australia has traditionally been weak. Private equity investors are therefore keen to have the option of sourcing debt financing offshore.

There are two potential hurdles. First, the US high-yield market is only likely to be open to international sponsors engaged in large deals where the target companies have some relevance to US investors (for example, overseas cash flow). Second, there is a currency mismatch, which places a hedging burden on lenders with US dollar-denominated balance sheets supporting Australian dollar deals.

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• Topics
• Financing
• Australasia
• Buyouts
• Pacific Equity Partners
• Australia
• Leveraged finance
• buyout