Pignataro’s ION has taken about US$3bil of private loans, mostly provided by the New York-based fund. — Bloomberg
Rome: Andrea Pignataro’s ION Group borrowed billions of dollars from US private lender HPS Investment Partners in recent years to fuel an acquisition spree, adding a layer of expensive loans to the pile of publicly traded debt already weighing on the Italian tycoon’s financial technology (fintech) empire.
ION has taken about US$3bil of private loans, mostly provided by the New York-based fund, according to an analysis of its most recent financial accounts by Bloomberg News and people familiar with the matter.
The loans were raised by different holding companies that sit atop ION’s sprawling businesses. Taken all together, they represent one of the biggest private-debt deals for a European company to date, according to data compiled by Bloomberg.
They are in addition to about US$12bil of bonds and loans issued by ION’s operating companies, borrowings that had already prompted the Italian government to step up scrutiny of the group’s latest takeover, Milan-based asset manager Prelios.
The private-debt industry has boomed in the past few years, giving corporates like ION access to discrete financing from deep-pocketed lenders without the need to open up their books to investors across public markets.
ION used its borrowings to help fund acquisitions, most recently focused on Italy, but that playbook has now become far more expensive.
As central banks pulled the plug on cheap money to fight inflation, financing costs have jumped dramatically.
Interest bills on ION’s private debt have risen by about a third in the last two years to an average of more than 10%, resulting in annual debt-servicing costs of hundreds of millions of US dollars, according to Bloomberg calculations.
Companies typically rely on dividends from their operating entities to service debt at the holding-company level.
In response to Bloomberg, ION said it has an “established track record of growth and deleveraging as appreciated by our institutional-credit investors.” It declined to comment on specific figures. A representative for HPS declined to comment.
ION’s businesses include financial services firms like Dealogic, Fidessa Trading and Acuris, the owner of financial news platform Mergermarket.
Bloomberg LP, the parent company of Bloomberg News, competes with ION in providing financial software and data.
Pignataro, a 53-year-old former Salomon Brothers trader, founded ION in the late 1990s in London, growing it through acquisitions into a key player in financial markets.
The group offers services to financial institutions, central banks, governments, and corporates. Since its founding, ION never sold a major business.
Through its subsidiaries, the group manages sensitive client, personal and financial data and key infrastructures for the financial system.
Its critical position was seen last year when a cyber attack on one of its businesses caused havoc for derivatives traders, prompting ION to roll out new software.
The private loans are a key component in a complicated corporate structure spanning Luxembourg, Ireland, Italy, Britain and the United States. ION recorded about 3bil in revenue in the last 12 months, the people said.
Italy has asked for a second review of the 1.35bil Prelios deal once the financing is in place and guarantees over the shares are awarded to lenders.
The move came as a surprise as this is one of the first transactions falling under the government’s scrutiny because of the financing structure, the people said.
Rome, which has special powers to block or impose conditions on deals involving strategic assets, is set to reassess the Prelios transaction once terms are finalised.
ION has invested about 5bil in Italian companies over the last three years.
It owns financial services firms Cerved and Cedacri and bought stakes in lenders Banca Monte dei Paschi di Siena SpA, Illimity SpA and Cassa di Risparmio di Volterra.
The high cost of the private loans partly reflects their riskiness compared with the publicly traded debt. Because they were issued at the holding-company level, these loans sit behind other debt in the repayment line if the company were to ever default.
ION has an option to pay a portion of the interest due each year in kind, meaning by accruing more debt, the people familiar said.
The loans don’t weigh directly on the balance sheets of the operating companies, but the hefty interest bill could create a need to transfer money to the holding companies to cover the costs.
The operating businesses can rely on earnings and fresh borrowings to provide that cash.
Pignataro’s relationship with HPS dates back at least to 2019 when ION bought Acuris, now held in the Analytics division. At the time, HPS teamed up with Goldman Sachs Group Inc to provide US$1.25bil to fund the deal.
This was later refinanced with bonds and leveraged loans issued out of the Acuris units, but the relationship continued, and now spans some key holding companies in all of ION’s main divisions: ION Markets, ION Corporates, ION Analytics, Cedacri and Cerved.
Each division has several intermediate entities separating holding and operating units. While the Italian divisions Cedacri and Cerved have some minority shareholders – including Singapore’s sovereign wealth fund GIC Pte Ltd – they are all effectively controlled by Pignataro himself through a Luxembourg entity called ION Investment Corp Sarl.
It most recently reported assets of 20bil net of liabilities, without providing the breakdown of the debt structure underneath.
Pignataro’s acquisition strategy is similar to that of a private-equity firm. ION raises debt through the target company at the time of the deal while contributing equity from the parent.
The group has often relied on private financings at the holding-company level to provide at least some of the equity, according to the people with knowledge of the matter.
Debt investors and rating agencies typically view these as a sign of a more aggressive financial policy because they reduce the amount of money that equity owners have at stake.
“Historically private financings (payment in kind and with no covenants and maturities well outside public financings) has been used to provide liquidity to minority investors that rolled over equity from prior acquisitions and have been bought back over time,” ION said in its statement.
In 2023, S&P Global Ratings forecast that the operating units would have an earnings-to-debt ratio between seven and 9.5 times at the end of the year, but that doesn’t consider the holding-company private debt, according to its reports.
S&P had long assessed ION as a private equity portfolio company, but changed its view last year because, unlike the traditional price-to-earning model, ION has an “infinite investment horizon.”
Still, it expects ION will continue to “operate the entities under management with high leverage while engaging in dividend recapitalisations”, adding that it “never had a default in its over 20-year history”.
“ION Group is a long-term industrial operator focused on transforming the companies and industries we operate in,” ION said in the statement. “ION acquires companies to accelerate our industry-transformation plans.” — Bloomberg
