The winner in this year’s Loans below £750m category was ERM, a privately owned global provider of environmental, health, safety, risk and social consulting services, as well as sustainability-related services.
In late 2018, the decision was taken to refinance all the company’s debt across the whole organisation – around 100 business units. There were a number of drivers for this: ERM was facing $875m of upcoming maturities between 2020 and 2022, while there was a need to increase liquidity by replacing a fully drawn $70m acquisition facility with a new undrawn $125m revolving credit facility (RCF).
Other goals included positioning the company for a ratings upgrade from Moody’s and supporting further expansion by strengthening ERM’s financial position in the area of sustainable consulting.
Having ruled out markets such as bonds and US private placements, ERM undertook extensive analysis to validate the decision to go to the loan market. This included evaluating the company’s capital structure based on a new long-term forecasting model, as well as analysing available funding instruments and exploring a reduction of future refinancing risk.
The company also carried out thorough credit analysis to support and strengthen its credit position, and took steps to determine the appropriate level of hedging.
Following a request for proposal process, ERM appointed Citi as sole global coordinator and tasked the bank with repositioning ERM credit with investors, explaining the change in business profile and the company’s strategic initiatives since the previous financing, and increasing the number and geography of investors. To help de-risk the transaction, Citi recommended that ERM pre-market the transaction ahead of launch in July 2019.
The subsequent refinancing included:
Both the EUR and USD tranches were more than three times oversubscribed, with the number of investors tripling to 98. Meanwhile, the holding concentration of the top five investors more than halved to 27% of the total issue.
The judges were impressed by the complexity of the deal, which saw ERM achieve a Moody’s ratings upgrade from B3 to B2, while attracting a significant number of new investors. The deal included innovation such as the use of preferable elements from US and European loan documentation seldom seen in vanilla loans.
“A complex and interesting deal that demonstrated plenty of innovative elements.”
Provider: Citi
Structure: Refinancing including a $500m term loan, a €180m term loan, a $175m second lien term loan and a $125m multi-currency RCF
Highly commended National Express Group
The judges also commended National Express Group in this category for demonstrating considerable innovation in closing the first-ever debt facility priced using the sterling overnight index average (SONIA) – a topical exercise given that regulators have stated lenders and borrowers have to abandon Libor by the end of 2021.
With no Loan Market Association or market precedent for SONIA debt facilities terms, the team had to carry out extensive negotiation on other documentation terms to reflect the new reference rate mechanics. And with no market convention for calculating a daily compounding SONIA rate, the team developed a complex but practical methodology for doing this, as well as developing its own automated SONIA calculator.
This article was taken from the October/November 2020 issue of The Treasurer magazine.
