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Univar to shell out $544M in dividends

by David Holley | Published May 16, 2012 at 4:30 PM

Industrial chemicals distributor Univar Inc. is paying out a $544 million sponsor dividend through a debt-funded recapitalization of more than $1.5 billion of existing debt.

The dividend is the first payout since Clayton Dubilier & Rice LLC bought a 42.5% stake in Redmond, Wash.-based Univar in 2010 from CVC Capital Partners and and other investors.

Moelis & Co., Goldman, Sachs & Co., Bank of America Merrill Lynch and Morgan Stanley are joint lead arrangers and bookrunners on a $750 million incremental term loan that launched Tuesday, May 15. Wells Fargo & Co. and Deutsche Bank AG are also participating in the financing.

The company is also issuing $750 million in new senior unsecured notes due 2019, which Moody's Investors Service rated B2 and B3, respectively.

The incremental term loan is expected to be fungible with the company's current covenant-lite $1.98 billion term loan, according to Standard & Poor's Leveraged Commentary and Data. Price talk on the term loan is around LIBOR plus 375-400 basis points, with a 1.5% LIBOR floor and an offer price of 99 to 99.5.

A person familiar with the financing said that adjusted net debt is about $3.9 billion, and leverage is roughly 5.9 times Ebitda.

The person said the fact that Univar's management had previously been able to pay off large debt balances with excess cash flow in 2007, when CVC first invested, and in 2010, when it acquired Basic Chemical Solutions, helped make this financing attractive. Plus, the company's capital expenditures are minimal, the source said.

In 2007 CVC took Univar, then headquartered in the Netherlands, private from the Euronext Amsterdam Exchange in a $3.4 billion leveraged buyout. When the deal closed, CVC held a 74% indirect stake, while Dutch private equity firm Parcom Capital BV indirectly owned 12.1%, Goldman Sachs, 4.7% and Univar's management, 9.8%.

The firms injected roughly $1.2 billion in equity.

CD&R bought the company three years later for an undisclosed purchase price. The companies said CD&R held about 42.5%, and CVC maintained a similar stake. The other investors held the remaining stake of roughly 15%.

If both firms hold the same amount, 42.5%, each shareholder would take home about $231 million from the dividend.

The remaining funds will be used to refinance $1 billion of existing senior subordinated notes due 2017/2018.

The recap increases Univar's debt by $725 million.

On Tuesday, Moody's, which affirmed Univar's B2 corporate family rating, said Univar's leverage will be 7.2 times, with $4.4 billion in adjusted net debt on the books.

The ratings agency said the refinancing allows Univar to lower costs because the existing $1 billion has a 12% coupon.

"Univar has grown its EBITDA organically and through acquisitions allowing it to increase debt, while lowering its leverage ratio," Moody's senior analyst James Wilkins wrote in a May 15 report.

But the agency said the ratings also depend on whether the company can de-lever before issuing additional dividends or making large add-on acquisitions.

"The elevated debt level positions Univar weakly in the B2 rating category," said Wilkins in the note. However, he added, "Univar has successfully de-levered in the past after levering events such as dividends and acquisitions through growing its profits."

The ratings take factor in Univar's leading market share in North America and large share in Europe, as well as its economies of scale, Moody's said.

Univar had $9.7 billion in revenue for 2011, up from $7.2 billion in 2009 on Ebitda of $427.7 million.

Univar contemplated plans for an initial public offering in 2010, targeting about $862.5 million in proceeds, but dropped the idea after CD&R's equity investment.

CVC and CD&R executives were unavailable for comment.

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