Private equity consortium (Advent International, Bain Capital and Clessidra) who won auction for Italy’s payment services bank Istituto Centrale delle Banche Popolari (Icbpi) last Summer, is launching a 1.1 billion euros bond issue. The deal is expected since last June.
The issue will back Icbpi’s buyout and will consist in two tranches (one paying a fix rate coupon and the other a floating rate coupon) structured as PIK Toggle Notes (payment-in-kind notes with interests payable at maturity) which will be issued by the newco Mercury Bondco plc.
The three private equity firms signed an agreement to buyout Icbpi last June 19th and yhe acquisition is still pending approval by the European Commission, the Bank of Italy, the European Central Bank and the competent antitrust authorities.
A press release by Moody’s rating agency published on November 2nd and assigning Icbpi a corporate family rating (CFR) Ba2Â said that upon the completion of the transaction, the private equity sponsors will own 89% of the share capital of Icbpi for a total consideration of approximately1.9 billion euros including deferred consideration of 89 millions payable on 31 May 2016. The acquisition will be funded through equity from the sponsors as well as debt to be raised outside of the banking regulated group.On the other hand the press release published last June by Icbpi’s shareholders said that the private equity consortium had made two differents bids. A first one gives Icbpi an enterprise value of 2.15 billion euros and include a 50% leverage, while the second gives Icbpi a 2 billion euros EV but is an almost full equity bid, that is to say that the acquisition will be financed with just 425 million euros of debt.
Moreover, the press release said that the consideration also included an additional component in the form of an earn-out linked to proceeds that may be paid by Visa Europe to CartaSì. for an amount which could not be quantified then. On Monday Novembre 2nd however Visa announced it will buy Visa Europe for a 21.2 billion euros price tag and that would mean for CartaSì a 400 million euros capital gain, MF Milano Finanza wrote yesterday. The capital gain will be distributed among CartaSì’s shareholders who are both a group of italian coopertive banks and Icbpi itself.
Yesterday Moody’s also assigned a B3 preliminary rating with stable outlook to the two PIK notes issues as it calculated that Icbpi had a 5.6x leverage, based on management’s reported ebitda of  201.3 million euros generated in the last twelve months to 30 June 2015. Moody’s does not expect any de-leveraging over the next 18 months with ebitda only growing from 2017 owing to top-line growth and the company delivering on its commercial initiatives and cost savings to be implemented under its new private equity ownership. Icbpi generated net revenues and ebitda of 670 million euro and 196 million, euros respectively, in fiscal year ending on 31 December 2014.
The notes are rated below the CFR, reflecting their structural subordination to any debt and non-debt liabilities at Icbpi, with the latter being subject to regulatory requirements constraining its capacity to upstream dividends. This differential in ratings between the bonds and the CFR is four notches, reflecting the high leverage and weak interest cover metrics, Moody’s says. Assuming an annual distribution of dividends representing 100% of net income, interest cover at Mercury level is projected at slightly above 1.0x in 2015 with Moody’s expectation of moderate improvement over the next three years.
Moody’s notes that the probability of default is however limited until the maturity of the bonds thanks to a 40 million euros cash overfunding at Mercury at the closing of the transaction, a 55 million euro revolving credit facility for interest payments and a comfortable capital buffer, above regulatory minimum requirements, in the form of excess Common Equity Tier 1 ratio held at Icbpi.
Icbpi’s CET1 ratio is actually about 21.5% and even if the ratio is going to be lowered in the next future due to Icbpi’s assets growth through internal and external lines, the ratio will still remain well above the supervisory minimum requirements.
