IFR-Advent funds Priory buyout with cheap high-yield bond

Fri Jan 28, 2011 6:19am EST
* Advent funds Priory deal directly via bond market
* Advent equity cheque lower-than-expected at 33 pct
* Largest sponsor-backed sterling deal since April 2007
By Natalie Harrison

LONDON, Jan 28 (IFR) - U.S. private-equity firm Advent
International funded the buyout of the Priory healthcare group
on Thursday with a GBP600m high-yield bond which undercut the
more expensive leveraged loan market.

The bond, split between a GBP425m 7-year senior secured
issue and a GBP175m 8-year senior unsecured tranche, is the
largest sponsored-backed sterling deal since the 3-part GBP640m
bond in April 2007 which backed Apollo's purchase of UK estate
agent chain Countrywide, a banker familiar with the matter said.
It is also the largest sterling deal since Virgin Media's
(VMED.O) GBP875m senior secured issue 12 months ago, which came
with the same coupon as Priory's secured issue at 7 pct, the
banker said.

Unusually for an M&A transaction, the bonds will pay for the
purchase directly without bridge financing. The funds will be
held in an escrow account until Advent receives regulatory
clearance, expected in about six weeks time, the banker said.
If the M&A process fails to close, those funds are released
back to the bondholders.

The financing has reinforced expectations that the
high-yield bond market will fund a significant chunk of an
expected rise in merger and acquisitions.
"The bond market is pricing very competitively, with bonds
pricing inside of where senior loans can get done in certain
cases," said Eric Capp, head of global high-yield syndicate at
the Royal Bank of Scotland (RBS.L), former owners of the Priory.
Both the secured and unsecured issues priced at par with
respective coupons of 7% and 8.875%, which were at the tight end
of initial guidance set at 7-7.25% and 9% area respectively.

The sale is part of the majority state-owned bank's strategy
to sell non-core assets and trim its balance sheet.
The final price tag of GBP925m was below the GBP1bn that RBS
had initially been seeking, but brings to an end a long-awaited
sale by the bank, which inherited the business after its merger
with Dutch bank ABN Amro in 2007.

The all-bond financed deal was quicker to arrange than a
loan might have been and also gives Advent more leeway with
respect to covenants if it decides to make further acquistions,
bankers said.
Source: Reuters.Com