Kappa’s backers to issue new bond

Falling costs for high yield debt encourage CVC and Cinven to go for an ambitious debt package.

CVC Capital Partners and Cinven, the owners of Dutch packaging firm Kappa, are likely to issue another high yield bond as part of Kappa's E1.6bn refinancing programme, according to Financial News.

The UK private equity houses are in the process of merging with Kappa the corrugated metal packaging business they bought last month from AssiDoman, the corrugated board company. The move would create a single balance sheet for the two companies which would feature E520m of senior loan debt and E115m of mezzanine debt.

The mechanism of choice to repackage these debts is, according to the paper, most likely to be another high hield bond offering. Since CVC and the private equity firms tapped the junk market in 1999 to finance part of the original Kappa buyout, the junk bond market has become a harsher place. Private equity companies shunned the market as the cost of capital for leveraged companies rose from about 10 per cent to more than 11 per cent.

However this trend has since reversed, capital costs are now going down, and industrial issuers in the high yield space remain few and far between, making a bond an attractive option at this point in time.

Kappa's bankers – Barclays Capital, Deutsche Bank and Merrill Lynch – are in discussions with CVC and Cinven about how to best structure the company's debt.