There is increasing chatter around a potential reverse-flex for Iceland Foods’ £885 million LBO, following what players are describing as a successful syndication. The formal deadline for responses passed on Wednesday, and while some stragglers were yet to respond, the deal has gone down well with investors – both on the bank and fund side – and there is talk that the TLB is heavily oversubscribed.

In light of the recent reverse/structural flexes for CPA Global and Ahlsell on the back of their oversubscriptions, players are making the assumption that a flex of some description is all but certain for Iceland Foods.

(Indeed, after this story was written the loan arrangers announced that pricing on the deal was being reduced due to market demand. Subscriber link)

How “market flex” pricing works, and how it evolved in the leveraged finance world, is detailed here, in LCD’s Loan Primer. It’s free.

Among the options potentially available to the borrower could be a reduction on the margin currently offered on the TLB, or a reduction in the OID offered. The £200 million seven-year TLB-1 pays L+550, while the £360 million seven-year euro-denominated TLB-2 pays L+525. The OID has been talked in the 98 area. Also, given Iceland is a U.K. borrower, another option could include optimising the ultimate currency mix.

Demand for the transaction has been bolstered by a positive perception of management, as well as the company’s overall performance. It has also been noted that despite being a retail credit, Iceland is a discount food retail business, and therefore relatively defensive versus the broader sector.

The strong B+/Ba3 rating profile provided further support, as has a limited new-issue pipeline, according to sources.

Keen to maximise their allocations on the euro TLB portion, some funds have put in commitments for the sterling TLB, while traders have also reported some selling of sterling secondary assets this week as funds make room for the deal.

Credit Suisse, Deutsche Bank, HSBC, Nomura, and RBS are MLAs and bookrunners.

Iceland reported sales of £2.4 billion in the financial year to March 2011, up 5.9% on the previous year, and EBITDA up 2% to £188 million. It opened 20 net new stores that year, and was effectively debt free at year end. – Sarah Husband / David Cox