Australia’s PEP eyes US debt financing market
Pacific Equity Partners (PEP) is considering US refinancing options for several of its portfolio companies after a well received debt offering for movie theater chain Hoyts in May. The Australian GP is one of several to opt for US over domestic debt markets, noting that the terms are more favorable even when factoring in foreign exchange hedging costs. Local banks are beginning to respond by offering better terms themselves.
"We completed a refinancing of Hoyts in the US market and that was very successful - it was well received by investors and we were able to upsize the offer. It's the first time we have done something like that," Tony Duthie, managing director at PEP, told AVCJ. "What this has done is make the local banks compete more aggressively and allow us to do things like dividend recaps and improve the terms on which we are able to borrow."
According to AVCJ Research, PEP paid A$440 million (then $396 million) for Hoyts in 2007. An IPO was considered two years ago but plans were shelved due to market conditions. The company set out to raise $450 million in the US high-yield market, through a $310 million seven-year first-lien loan plus $100 million in second-lien financing and a revolving credit facility of around $40 million.
Other investments in the PEP portfolio that date from roughly the same period include snacks producer Griffin's Foods, stock transfer agent AST and credit checking company Veda Advantage. Duthie said that, although PEP is looking to take advantage of strong liquidity in the US lending market, it is being cautious not to ramp up leverage.
The restructuring of Nine Entertainment led by Apollo Global Management and Oaktree Management, which tapped the US Term Loan B market for $700 million last autumn, is credited for doing much of the groundwork for the spate of US financing that has followed. According to Bloomberg, in the five months to March 2013, Australian companies raised a record $6.2 billion in high-yield debt via the US markets.
"We can swap out the currency and interest rate risk. That is one thing that has really changed in the last 12 months," Duthie explained. "We can swap these packages back and still be very competitive with a domestic structure. In addition to that, we find that some of the terms outside of pricing - such as tenor, covenants, and use of the funds - are more favorable than what we would get domestically."
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