LONDON: Goldman Sachs Asset Management and KKR & Co are among lenders providing around €1.4bil of one of the most expensive types of debt to back CapVest Partners’ acquisition of a majority stake in German drugmaker Stada Arzneimittel AG.

Canadian pension fund PSP Investments and London-based Arcmont Asset Management are also among lenders, according to sources.

The group is putting up €1.4bil (US$1.6bil) in payment-in-kind (PIK) debt, they said.

PIK allows issuers to delay interest payments until the final maturity date, and is typically seen as more risky than conventional junk debt issuance.

PIK has shown up in an increasing number of refinancing deals recently as companies take advantage of strong investor appetite.

Spokespeople for CapVest, GSAM, KKR, Arcmont and PSP declined to comment.

London-based CapVest agreed on Monday to acquire a majority stake in Stada from Bain Capital and Cinven.

The two private equity firms will keep a minority holding. Terms weren’t disclosed, though Bloomberg reported before the deal was announced that CapVest was said to value Stada at about €10bil including debt, marking Europe’s largest leveraged buyout this year.

The acquisition will see the majority of Stada’s debt stay in place due to a so-called portability clause, according to the source.

Portability means that a new buyer doesn’t have to put a brand new debt package in place after a takeover – smoothing the path for buyers.

The feature is a blow to banks, however, which miss out on the big fees typically associated with buyouts.

In an era of tariff headlines and market volatility, portability has been appearing in more and more refinancing deals this year, with private equity owners using the provision to help them buy and sell companies without fresh borrowings.

Stada is one of the most high-profile examples to date of portability being used, but it has also appeared in other European deals.

In October last year, following the acquisition of German energy meter firm Techem GmbH by GIC Pte and TPG Inc, investors approved a request that enabled €1.85bil of debt to remain in place.

Stada will look to raise as much as €400mil of senior debt, to replace a small portion of existing financing which isn’t portable, the people added.

CapVest’s transaction marks the latest example of a mid-market PE firm seeking to do an acquisition multiple times the size of anything it’s ever done.

The purchase of Stada is by far its largest-ever, and vaults the UK firm into the private equity big leagues. — Bloomberg