Boots Bidders assesses private credit for $5.3 billion tranche of debt

(Bloomberg) – Bidders at British pharmacy chain Boots are considering using private credit for the riskiest parts of a debt financing worth around 4 billion pounds ($5.3 billion) , people familiar with the matter said, as the Russian invasion of Ukraine puts the brakes on banks. risk appetite.

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Walgreens Boots Alliance Inc. began the process of selling its Boots unit in January. The sale attracted several potential buyers, including Sycamore Partners, Apollo Global Management, TDR Capital and the Issa brothers, who bought British grocer Asda Group Ltd. last year, the sources said, asking not to be named as the talks are private.

Potential suitors currently gearing up for second-round bids are looking to sew up financing, which has become increasingly complicated given the size of the deal, a volatile market and a rising interest rate environment. This leads them to a combined structure of bank debt and private credit.

Boots, Apollo, Sycamore, TDR and the Issa brothers declined to comment. Walgreens did not immediately respond to a request for comment.

The European high-yield bond market has been closed since Feb. 10, and the leveraged loan market has followed suit. As the first signs of life begin to appear, the expectation is that banks are unlikely to want to commit to huge sub-investment grade financings, especially as they are based on approximately 37 billion dollars of subscriptions put in place before the conflict. .

Sterling retail credit has traditionally been funded in the bond market, but this market has suffered in a rising rate environment and a resulting preference for floating rate loans. Some £4.4bn of outstanding debt for Wm Morrison Supermarkets Plc is also weighing on banks’ balance sheets, impacting their willingness to take on more sterling-denominated debt for UK retailers.

On the other hand, well-capitalized private credit has been eager to lend, pushing the limits of what they are able to take on and battling banks to lend on transactions. Capital markets teams at private equity firms now typically run a two-track process – as in the IVIRMA fertility clinic chain auction – leaving both private credit and banks to compete.

The ability of direct lenders to lend at scale and to collaborate with others to achieve multi-billion pounds on any individual transaction has also increased. This was evident most recently with The Access Group, which this month approached direct lenders for what would be the largest debt package yet for the private credit sector in Europe.

While in several cases the markets have been pitted against each other, it is expected that Boots, rather than going head-to-head, banks and private credit will work together to provide bidders with joint debt financing.

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