Novelis management ‘close’ to lining up committed financing for Aleris acquisition

Novelis doesn’t yet have committed financing lined up for its USD 2.6bn acquisition of fellow aluminum roller Aleris, but expects to have the deal underwritten within the next few weeks, Novelis CEO Steve Fisher said on an investor call this afternoon.

The company announced the deal this morning, which includes the assumption of USD 1.8bn in Aleris debt. The acquisition will be fully debt-financed, according to the press release.

Novelis has over USD 4bn in secured debt capacity that it could utilize for the acquisition, management said on the call. CFO Devinder Ahuja echoed Fisher’s comments on timing, saying the company is “close” to lining up the funds.

Meanwhile, for its part Aleris issued a pricey USD 400m 10.75% senior secured junior priority bond due 2023 a month ago. The bonds have a special call provision tied to a change of control, in which the company can call the bonds at 102 during the first year and 103 in the second year in connection with a CoC.

That provision has underpinned trading activity today. The bonds jumped to the 106 area in heavy trading this morning after changing hands at 104.125 yesterday, according to MarketAxess. Since the deal has an exceedingly long time horizon – the company estimates anywhere from nine to 15 months until close – the bonds are trading a few points higher than their expected takeout price, a buysider said.

Novelis management will likely want to redeem the double-digit coupon bonds as soon as possible, considering that its own cost of capital is substantially lower, several buysiders said.

Novelis’s USD 1.5bn 5.875% unsecured notes due 2026 traded today at 96.75 yielding 6.4%, in line with recent levels.

Novelis expects leverage pro forma the merger of just below 4x, and to decline to 3x within two years. Moody’s estimates pro forma leverage at a higher 5.5x level based on LTM figures, according to a ratings note published today.

Aleris’s capital structure also includes a USD 1.1bn Libor+ 475bps (1% floor) first lien term loan due 2023, also issued last month at a 99 OID. The TLB is quoted in the 100.583/101.25 context, according to Markit.

The Aleris loan and bond package went through a round of changes during syndication in order to entice investors. At the time, the borrower was 9.5x levered and was attempting to reverse its recent cash burning trend.

2018 Debtwire

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