Credit crunch hampers Boots second lien sale

The problems in the debt markets have forced the underwriting banks to extend the sale of the £1 billion second lien on the Alliance Boots deal.

The underwriting banks on the Alliance Boots deal will miss their self-imposed deadline for syndication of the second lien debt package, according to someone close to a lead underwriting bank. 

The banks were close to placing the mezzanine tranche, she said.

A senior figure at a debt provider, said: “The market has moved quite a bit since Wednesday afternoon and they are having problems selling it. They are likely to give a bigger discount to clear the second lien or simply decide not to sell it.” The mezzanine tranche may also have been sold at a substantial discount to Wednesday’s price, she added.

On Wednesday, the lead underwriting banks, Deutsche Bank, Unicredit and JP Morgan postponed the syndication of £5.05 billion ($10.4 billion, €7.6 billion) of senior debt.

They also offered the £750 million of mezzanine at 650 basis points and the £1 billion of second lien at 425 basis points, with a 96 percent and 95 percent discount respectively. Sources in the market had said earlier that the underwriters had placed both tranches of debt.

A European banker said investors may also have tried to renegotiate the covenant-lite structure of the mezzanine debt.

He also said the banks may have changed the covenant loose structure of the second lien from one maintenance covenant to two. Covenant-lite loans, controversially, do not include maintenance covenants, which allow debt investors to carry out regular reviews of the performance of companies.