Western banks shun Weetabix loan refi over aggressive terms

By Claire Ruckin

LONDON (Reuters) - A number of western banks have dropped out of bidding to lead a leveraged loan refinancing for British cereal maker Weetabix as they have struggled to keep up with the aggressive terms offered by Chinese banks, banking sources said on Wednesday.

Baring Private Equity Asia is nearing a deal to buy a 40 percent stake in the UK's second-largest branded manufacturer of cereals and cereal bars from Chinese state-owned food and dairy group Bright Food.

Weetabix invited more than 10 banks to submit proposals for the up to 1 billion pounds ($1.57 billion) financing in June but a number of western banks have been unable to match or better the terms offered by lenders such as Bank of China, the sources said.

“Weetabix is covenant-lite, sterling and highly leveraged. If it gets the deal they told us they were getting then god bless them,” one London-based leveraged banker said.

Several western bankers dropped out of the process for fear that the aggressive deal terms would deter institutional investors from joining the financing when selling it down in a syndication process, the sources said.

“Even if we use all of our flex during syndication we still won’t be in the money,” a second loan banker said.

The financing is expected to come to the market in September and includes a 650 million pound term loan B and a preplaced second lien loan, as a well as undrawn facilities, the bankers said.

Weetabix is looking to pay an interest margin of 400bp over Libor, on a covenant-lite sterling term loan, leveraged up to 7 times, the bankers said.

The pricing is seen as aggressive compared to other sterling deals in the market.

A 485 million pound term loan B for UK-based snacks maker United Biscuits managed to reprice lower in June to pay 425bp over Libor, down from original pricing of 475bp when it was put in place in December 2014. Bankers said it could not have paid lower, despite being a strong company as investors needed to be compensated for putting sterling to work.

In 2012, Bright Food acquired a controlling 60 percent stake in Northamptonshire-based Weetabix from Lion Capital for 1.2 billion pounds and bought the remaining 40 percent stake earlier this year, which it intends to sell to Baring. The Deal is expected to value the company at around 1.3 billion pounds.

Bank of China, Baring, Bright Food and Weetabix were not immediately available to comment.

(Editing by Christopher Mangham)