Rlpc styrolution holds banks to account on 105 bln euro loan

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Oct 9 German plastics maker Styrolution's decision to replace two lead banks on a 1.05 billion euro-equivalent (1.34 billion US dollar) leveraged loan shows borrowers taking a tough line with lenders in a softening market, banking sources said on Thursday. Styrolution mandated Citigroup and Credit Suisse to lead the loan, which will refinance existing senior bonds and fund Ineos' $1.5 billion purchase of a 50 percent stake in Styrolution that it did not already own from German chemicals manufacturer BASF. The two banks offered aggressive terms to win the mandate in the summer and launched the deal in July, but were unable to sell it after market conditions changed and the loan was pulled in August. The deal was not underwritten and was being sold on a 'best efforts' basis, which allowed Styrolution and its owner Ineos to review options and change banks. Barclays and JP Morgan stepped in to lead the deal, which was relaunched in October with different terms, including a smaller first lien loan and a new second lien loan. A planned 100 million euro dividend payment to Ineos was cancelled. Citigroup declined to comment. Credit Suisse, Ineos and Styrolution were not immediately available to comment. UNUSUAL MOVE Replacing arranging banks on large leveraged loans is an unusual and an aggressive move, which shows borrowers holding banks to account as market conditions soften.

"Styrolution shows that companies and sponsors need to be more cautious about the terms they negotiate or are offered from banks," a loan syndicate head said. Banks were bidding aggressively and undercutting each other to win mandates before the summer and relying on market flex to improve terms in order to sell the paper to investors if required, but are now growing more cautious."Some banks have been super aggressive and there should be a realisation beginning to dawn that pledging the most aggressive terms and squeezing a deal isn't the best strategy," the loan syndicate head said. Styrolution's decision to replace its lead banks is a cautionary tale for lenders which could lead to less aggressive bidding, as bankers anticipate a volatile fourth quarter.

Citigroup and Credit Suisse were expected to make combined fees of around 12-16 million euros, or 75-100 basis points (bp), on Styrolution's refinancing, two loan bankers said. Styrolution's switch of lead banks has little precedent in Europe. The company was set up as a joint venture between Ineos and BASF in 2011. Ineos is a sophisticated and experienced debt market borrower and is accustomed to calling the shots with banks after completing billions of euros of leveraged loans in the last 10 years. Arrangers of leveraged loans may have to rely less on market flex going forward, which is typically used to sweeten terms on deals that struggle to sell."A lot of banks over promise especially on best efforts deals as the risk is lower, but once they win a mandate they find they can't deliver. It is quite good that the borrower recognised what happened and dealt with it," another loan banker said.

COMPARING TERMS Styrolution's loan was originally structured as a 1.6 billion euro all-senior loan, with price guidance of 350-375bp on the euro tranche and 350bp on the dollar tranche. Both tranches had an Original Issue Discount of 99.5 with a 1 percent Euribor/Libor floor, which guarantees minimum returns for investors. A 100 million euro dividend payment to Ineos was also included, which has now been scrapped. The deal was relaunched as a 1.05 billion euro-equivalent term loan, with price guidance of 450-475bp, an OID of 99 and a 1 percent Euribor/Libor floor. The financing now includes around 350-400 million euros of second lien loans and around 100 million euros of balance sheet cash. Ineos agreed to buy the other half of Styrolution that it did not already own to gain full ownership of company on June 30. (1 US dollar = 0.7834 euro)