Kion to tap European HY markets with EUR 400 mn issue
Participation in new issue should depend on pricing
Kion, Europe’s largest manufacturer of industrial trucks (35% market share in Europe and 15% globally) owned by funds advised by KKR and Goldman Sachs Capital Partners will tap capital markets with a EUR 400 mn 7Y bond issue. Proceeds will be used to pay back senior facilities. The company is currently meeting with investors and we expect it to launch later this week. The industrial trucks market is highly cyclical, with peak to trough new orders falling by up to 50% in a cyclical downturn. Further, it is a relatively capital intensive business with high working capital requirements. However, currently the industry environment is favourable. In FY 2010, Kion achieved new orders of EUR 4,399 mn (up 45.3% y-o-y), revenues of EUR 3,534 mn (+14.6%) and an adjusted EBITDA of EUR 462 mn (up 48.7%). Its net adjusted leverage (for pensions, finance and operating leases) according to our calculation at FYE 2010 was 6.6x (vs. 8.7x at FYE 2009; note according to the OM current net financial debt to pro forma EBITDA is 4.47x). New notes will be issued by Kion Finance S.A., which will then lend on the proceeds to Linde Material Handling GmbH (via the notes credit facility). Notes in principal will rank pari passu with senior facilities, yet note holders have no direct recourse against Kion and only the security agent of the notes credit facility can take any enforcement action. The new notes will be secured by share pledges and pledges over certain assets of the Kion Group companies, including bank accounts. The guarantor subsidiaries account for 60% of total revenues, 75% of total assets and 55% of adjusted EBITDA. Underlying law of the notes is State of New York. We like Kion’s strong market position, its increasing presence in emerging markets, particularly China (in FY 2010 accounting for 7% of its revenues). The outlook for FY 2011 is bright and we expect substantially improved figures. Additionally, we believe management steered the company well through the financial crisis by amending its senior credit facilities, gaining shareholder support and successfully executing a comprehensive restructuring program. However, we are concerned about the very high leverage, the cyclicality of the business and the fact that even in the boom years Kion did not pursue any meaningful deleveraging. Furthermore, Kion has a debt maturity wall upcoming in 2014 and 2015 when its senior facilities are due and also the maturity of the EUR 200 mn second lien facility and the EUR 100 mn PiK loan, which was granted by its shareholders, and matures ahead of the bonds. The structure and the security package of the notes seem decent in our view, but the share of EBITDA of subsidiary guarantors is relatively low. Hence, we expect Kion to issue further notes or even increase the issue size if markets allow. We think that pricing should be slightly tighter than that of the recently launched HeidelbergDruck bond, which was priced at bunds +642 bps. We will comment in more detail later today in an Event Flash. If you would like to discuss the credit, please do not hesitate to call us.
Participation in new issue should depend on pricing
Kion, Europe’s largest manufacturer of industrial trucks (35% market share in Europe and 15% globally) owned by funds advised by KKR and Goldman Sachs Capital Partners will tap capital markets with a EUR 400 mn 7Y bond issue. Proceeds will be used to pay back senior facilities. The company is currently meeting with investors and we expect it to launch later this week. The industrial trucks market is highly cyclical, with peak to trough new orders falling by up to 50% in a cyclical downturn. Further, it is a relatively capital intensive business with high working capital requirements. However, currently the industry environment is favourable. In FY 2010, Kion achieved new orders of EUR 4,399 mn (up 45.3% y-o-y), revenues of EUR 3,534 mn (+14.6%) and an adjusted EBITDA of EUR 462 mn (up 48.7%). Its net adjusted leverage (for pensions, finance and operating leases) according to our calculation at FYE 2010 was 6.6x (vs. 8.7x at FYE 2009; note according to the OM current net financial debt to pro forma EBITDA is 4.47x). New notes will be issued by Kion Finance S.A., which will then lend on the proceeds to Linde Material Handling GmbH (via the notes credit facility). Notes in principal will rank pari passu with senior facilities, yet note holders have no direct recourse against Kion and only the security agent of the notes credit facility can take any enforcement action. The new notes will be secured by share pledges and pledges over certain assets of the Kion Group companies, including bank accounts. The guarantor subsidiaries account for 60% of total revenues, 75% of total assets and 55% of adjusted EBITDA. Underlying law of the notes is State of New York. We like Kion’s strong market position, its increasing presence in emerging markets, particularly China (in FY 2010 accounting for 7% of its revenues). The outlook for FY 2011 is bright and we expect substantially improved figures. Additionally, we believe management steered the company well through the financial crisis by amending its senior credit facilities, gaining shareholder support and successfully executing a comprehensive restructuring program. However, we are concerned about the very high leverage, the cyclicality of the business and the fact that even in the boom years Kion did not pursue any meaningful deleveraging. Furthermore, Kion has a debt maturity wall upcoming in 2014 and 2015 when its senior facilities are due and also the maturity of the EUR 200 mn second lien facility and the EUR 100 mn PiK loan, which was granted by its shareholders, and matures ahead of the bonds. The structure and the security package of the notes seem decent in our view, but the share of EBITDA of subsidiary guarantors is relatively low. Hence, we expect Kion to issue further notes or even increase the issue size if markets allow. We think that pricing should be slightly tighter than that of the recently launched HeidelbergDruck bond, which was priced at bunds +642 bps. We will comment in more detail later today in an Event Flash. If you would like to discuss the credit, please do not hesitate to call us.
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