This recently closed five year €200m multi-currency syndicated loan deal (revolving credit facility) with multiple increase and extension options (up to €500m and seven years) is not only the debut transaction of Merz but also its future backbone for the funding of further strategic development over the next years.
Photo of James Binns, Deutsche Bank and Karsten Kabas, Merz Pharma Group.
Head of Corporate Treasury
Merz is a privately held pharmaceutical company based in Frankfurt, Germany, with subsidiaries in European countries, North America, Latin America and Asia Pacific. The company is active in research, development and distribution of innovative products in the areas of aesthetic medicine and neurologically induced movement disorders. The Merz Pharma Group employs 2,738 people worldwide (previous year: 2,443), and generated revenue of €994m in fiscal year 2013/14 (previous year: €980.2m).
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The challenge was simple; when it comes to funding there is always a trade-off between costs/pricing, maturity, flexibility and the composition of the lender portfolio. Merz Pharma addressed this with a successful and unique transaction. Karsten Kabas, Head of Corporate Treasury at Merz Pharma Group says the solution shows how a corporate is able to leverage a debut transaction and an opportunistic market environment in order to achieve a result beyond the regular expectations one has when considering a revolving credit facility. “The several options and features perfectly match with our various potential financing demands and enable us to meet the different strategic demands that we could face during the next years,” Kabas says.
A recently closed five-year €200m multi-currency syndicated loan deal (revolving credit facility) with multiple increase and extension options (up to €500m and seven years). This deal is not only the debut transaction of Merz but is also its future backbone for the funding of further strategic development which could occur over the next few years.
Merz Pharma was able to achieve their desired end goal by:
Successfully negotiating an increase option which is larger than the initial volume. They achieved this to reduce their costs. From the start they just pay for the smaller initial amount and only need to pay more when they exercise the increase option – something only to be exercised when the company really needs the additional funding.
Considering the implicit voluntary cancellation option they have a tool if their funding needs decrease and they do not need the credit facility any more.
Adding multiple extension options so they can decide to go for a longer period if they need to stretch repayment or want to postpone refinancing negotiations (eg because they expect a more friendly debt market environment one or two years later).
By selecting strong and different banks they were able to avoid being dependent on a particular banking sector or country.
Using the full Loan Market Association (LMA) standard they ensured a high degree of legal standardisation which allows for changes to be made with respect to the participating banks if necessary.
Establishing favourable legal conditions (a wide definition of permitted acquisitions, general corporate purpose, voluntary cancellation option and only one financial covenant) meant they achieved a high degree of freedom to act.
Beside their two mandated lead arrangers and joint bookrunners, Deutsche Bank and HSBC, Merz added three strong banks with different backgrounds to complete their well-balanced syndicate. In order to potentially allow additional banks to step in when exercising the increase option, or if they wish to replace banks in case their credit rating does no longer meet Merz’s high standards, they decided to use the full LMA standard as base for their contract to ensure standardisation. Finally, with respect to additional banks they defined a portfolio of capable “bench players” which could be approached if necessary.
Best practice and innovation:
The combination of the elements in one debut transaction makes this deal unique and special. Without sacrificing the basics of a successful transaction – competitive pricing, appropriate maturity, a robust and diversified portfolio of participating banks, minimised financial covenants and a high freedom to act – Merz Pharma achieved multiple extension options and an increase option which is actually larger than the initial volume of the transaction itself. “This transaction is capable of serving as a cost-efficient all-in-one strategic financing solution over the next years for us – whatever happens,” adds Kabas.