NT Logistics will start marketing a 730 million euro ($947 million) two-part high-yield bond to help fund its acquisition by private equity fund Apollo Management LP.The deal will be split into 430 million euros of eight-year senior notes, callable after four years, and 300 million euros of 10-year senior subordinated notes, callable after five years.

This is being done to finance the purchase of TNT Logistics by Apollo Management LP for ?1.48bn. Such bonds are high yielding, several per cent points above base rates. The rating houses range within the ‘B’ grade, influenced by what they perceive as the stability and liquidity of TNT Logistics business. However this is qualified by the heavy debt burden that TNT Logistics now has courtesy of Apollo.

It is common practice at present for those purchasing companies to attach the debt burden to the asset, rather to themselves. This transfers the risk to the company rather than the investor, something which is very attractive to private equity companies. What the implications of this level of debt are for TNT Logistics is another matter. Whilst contract logistics is not an especially capital intensive business it can be vulnerable to any investment squeeze. It is also a good question what this level of debt will mean for the acquisition strategy of TNT Logistics. Dave Kulik, TNT Logistics CEO, indicated in an interview with Transport Intelligence in September that he might be in the market for buying assets such as a freight forwarding company. However ?730m worth of debt could put a damper on these ambitions.

Roadshows start in London on Monday Nov. 27 and run to Thursday.Credit Suisse, ABN AMRO, Bear Stearns and Goldman Sachs are managing the sale, which will be via Louis No. 1 Plc. Standard & Poor’s on Friday assigned a rating of B- to the two note issues, saying that the benefits of the group’s investment-grade business risk profile were outweighed by its highly leveraged financial structure. Moody’s Investors Service gave the senior notes a rating of B2, one notch above that from S&P, and the senior subordinated notes a rating of B3.

Apollo agreed to buy TNT Logistics, the world’s second largest provider of contract logistics in the world, from Dutch mail firm TNT in August for 1.48 billion euros. TNT has a 5 percent equity stake in the new company.

Source: Transport Intelligence and Reuters

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