US private equity giant Carlyle is reportedly preparing an enormous $3.7bn of financing as it maintains pole position to buy Johnson & Johnson’s diagnostics unit Ortho Clinical.
Carlyle is expected to pay between $4.1 and $4.5bn for the asset including equity, but the bulk of the deal will be made through $2.15bn of term loans, $1.15 of bonds and up to $400m in revolving credit according to Reuters, which cited sources with knowledge of the deal.
That proportion of debt represents a huge weighting compared to the average equity contribution of 32 per cent, according to figures from industry group the Private Equity and Growth Capital Council.
Heavily-leveraged deals all but disappeared following the financial crisis, which had left some private equity firms unable to cover the rocketing interest rates on portfolio companies.
But the Carlyle deal is the latest sign that confidence is returning to both the buyout and banking industries, and that leverage amounts could continue to creep up.
Carlyle emerged as the favourite to buy Johnson & Johnson’s diagnostics unit Ortho Clinical in October 2013 in the face of competition from other private equity players.
The firm entered exclusive talks for the asset that month according to Bloomberg, which cited four people familiar with the matter.
It said the firm had prevailed over a rival bid from Blackstone Group in partnership with healthcare and industrial conglomerate Danaher.
Bain Capital, BC Partners and the pairing of Leonard Green & Partners and CVC Capital were also previously said to be interested in buying the arm.
J&J received preliminary offers for Ortho in September and initially hoped to make as much as $5bn from the sale.
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