Package Deal

The cross-border refinancing of packaging maker Chesapeake may be the first of a series of deals on this scale.

The cross-border refinancing of packaging maker Chesapeake may be the first of a series of deals on this scale.

The cross-border refinancing of packaging maker Chesapeake may be the first of a series of deals on this scale.

Asset-based lending is widespread and long established, according to Christopher Hart, director of international sales at ABL provider Lloyds TSB Corporate Finance (LTSBCF).

You can even find references to it in The Count of Monte Cristoby Alexandre Dumas, which is set in the early 19th century, he adds. The trouble is that no two countries do it in quite the same way. ‘Each country has its own peculiarities,’ says Hart. ‘In the UK, it’s confidential invoice discounting. In France, it’s discounting bills of exchange. In Germany, it’s factoring. In Spain, it’s promissory notes.’

Clearing the hurdles

Differences such as these, along with a whole host of legal and cultural complexities, create plenty of challenges for the cross-border dealmaker, he adds. ‘We use whatever structure is appropriate for the country, because you must be confident that your documentation will meet the court test in each jurisdiction.’

One deal that used this cross-border capability to the full was the refinancing of packaging manufacturer Chesapeake, which LTSBCF completed last month, providing the full £75 million required. Chesapeake had a long history of paper manufacturing in the US but changed focus in the 1990s to the higher-margin business of packaging. With 35 manufacturing sites in Europe, the business ran into financing troubles in 2008, and was rescued from insolvency the following March by two private equity houses, Irving Place Capital and Oaktree Capital Management.

‘The private equity houses saw the opportunity and acquired some of Chesapeake’s bonds, which got them a seat
at the table,’ says Piers Harmer, business development director at LTSBCF, responsible for the firm’s private equity activities. The acquisition was completed in May 2009, using no debt. ‘It was not a deal you could finance at that time,’ recalls Harmer. The leveraged markets were closed and the business had just entered Chapter 11.

Suitable solution

The deal left the buy-out houses with a business that was profitable but with a financing model unlikely to generate appealing returns. ‘For a business of this size, with a very large balance sheet, it doesn’t make sense to finance it all on equity, which is very costly,’ says Harmer.

That was where LTSBCF came in. ‘We had a pan-European offering,’ says Hart, who speaks French and German in addition to his native English. ‘And we said right upfront that we would do the whole £75 million. At that time there were very few players even in ABL that would hold more than about £25 million.’

The deal has given Chesapeake security of funding for a number of years, freeing it up to make acquisitions and invest in equipment. ‘It removes the last of the uncertainty around the difficult times they’ve had,’ says Hart.

Chesapeake’s refinancing is unusual for its size and complexity, but it is not the first of its kind. Last year, LTSBCF funded the private equity buy-out of household goods company CeDo for £52 million, which was recognised as Buy-Out of the Year at the M&A Awards. LTSBCF is working on ‘a couple more’ deals on this scale.

On the private equity side, Harmer says that refinancings of stable or thriving businesses and new acquisitions by buy-out houses will be the main sources of activity for LTSBCF, rather than distressed deals. ‘There was talk of a wall of refinancings that had got to take place, but it’s not going to happen,’ he predicts. ‘There are assets that are underperforming, but banks have been happy to reset covenants and amortisation periods.’

Instead of stepping in to rescue toppling debt structures, Harmer believes ABL will prove to be ‘a very useful tool for private equity to grow businesses that have come through the recession leaner and fitter than they went in’.


Christopher Hart: Tel +44 7525 240 139

Piers Harmer: Tel +44 7971 408 513

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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