(Bloomberg) -- Clayton Dubilier & Rice made it a condition for banks to commit more than €1 billion ($1.1 billion) of debt to fund a part of the equity check for its bid for Sanofi’s consumer-health division, though the facility didn’t end up in the final package presented to the pharmaceutical firm.
The New York-based buyout shop had asked lenders to offer the so-called back leverage facility in order to get a place on the acquisition financing, according to people familiar with the matter, who asked not to be identified because the process is confidential. Back leverage is a type of loan that buyout shops can obtain to finance part of an equity investment in a specific company.
Private equity firms typically seek to maximize their range of financing options during a bidding process. In this case the facility didn’t end up in the final proposal presented to Sanofi, a separate person said. The winner of the bidding process has not yet been decided and the outcome remains uncertain.
A spokesperson for CD&R declined to comment. While Sanofi didn’t comment on the financing, a representative said that the firm is reviewing potential separation scenarios for the consumer healthcare business, including a sale or a stock market listing, with a decision expected in the next few weeks.
CD&R is competing with French rival PAI Partners for the €15 billion unit. Sanofi is likely to make a final decision in the coming days after reviewing the offers, Bloomberg News reported this week.
Back Leverage
Typically in a leveraged buyout, the bulk of the purchase price is paid with money that’s borrowed, and paid back, by the target company. The private equity buyers put in a relatively small amount of their own cash as equity.
Back leverage can give sponsors extra liquidity that allows them to buy large targets. The shares of the private equity-owned company are used as the collateral for the loan, which is subordinated debt and usually sits at the level of the holding company that owns the target.
CD&R’s back leverage commitment came on top of the €10 billion of debt that banks and other lenders have agreed to provide to back the buyout of the Sanofi unit.
After two years of relatively meager dealflow, banks are eager to return to leveraged buyouts, which are some of the most lucrative operations in finance. As many as 15 are jostling for the financing on the Sanofi bids.
The rest of the debt packages backing CD&R and PAI’s bids are fairly similar. A core group of banks signed funding commitments over the weekend for €7.5 billion to €7.8 billion of senior debt, Bloomberg News reported. They will also give provide about €1.2 billion in a revolving credit facility.
Private credit lenders are also lining up around €1.5 billion to €2 billion of junior debt to fund the buyout.
(Updates with Sanofi comment in fourth paragraph)
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