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LevFin Insights BDC Portfolio News 3/8/21

Posted on March 8, 2021

Opportunistic refinancing and repricing activity again sweeps through BDC holdings

After February’s deluge of new-money allocations, the loan market continued going strong into March, though the once-torrid pace of opportunistic launches slowed to a somewhat more manageable pace and, as was the case last month, not every transaction was a slam dunk. High-yield leaned more heavily on successes despite one cancellation and downdrafts in trading, and fresh supply pushed 2021 just over the $100 billion mark, a 50% rise compared with this point last year.

The cancellation, of course, was Vericast, a restructuring/self-help transaction that produced drama in both the loan and bond markets as the issuer attempted to refinance and push out maturities to 2026 in a deal with an aggressive one-week turnaround. Loan accounts were asked to extend the Harland Clarke term loan due 2023 in return for a $698 million paydown that would leave $775 million outstanding with a three-month maturity inside the new 2026 notes and a yield 100 bps inside the clearing yield on the secured bonds. Loan accounts angling for the paydown supported the deal, though an initial requirement for 90% participation proved a bridge too far with a number of holdouts standing firm. Arranger Credit Suisse appeared to hit the reduced 80% bogey late week but that effort was contingent on the Jefferies-led bond deal that would supply funds for the repayment.

Vericast had already downsized the first- and second-lien bonds by a collective $225 million to $1.1 billion for first-lien notes due 2026 from $1.3 billion and $675 million for the second-lien notes due 2027 from $700 million, as price talk emerged in in the 9.5% area and 12% area, respectively. That was 50 bps wide of whispers to say nothing of an initial pitch to the issuer that had been far rosier, as tight as 7.5%/10%. Still other provisions proved to be bigger sticking points as lenders continued to push for better terms throughout the process, ultimately resulting in a shelved transaction on Friday. 

As the market absorbed the news of Vericast’s refinancing getting pulled, the company’s existing term loan due November 2023 (L+475, 1% floor) slid to a 87–90 market, from a quote at 93–95 prior, and was said to have changed hands in an 87–88 context, sources said. The 8.375% notes due 2022 traded Friday at 101.25, unchanged from recent trades before, according to trade data.

Portfolios in brief: Holds reflect most recent reporting period available

Audax: Berlin Packaging (B3/B-) — Refinancing

Investors received allocations of Berlin Packaging’s $500 million incremental term loan strip (L+325, 0.5% floor), which was issued at 99.5. Morgan Stanley was left lead on the deal, which priced in line with talk. Proceeds refinance the packaging concern’s euro-denominated first-lien term loan and a portion of privately placed $335 million second-lien term loan and provides additional funding for GCP. The issuer is controlled by Oak Hill Capital Partners and Canada Pension Plan Investment Board. Audax Credit BDC holds $496,193 in principal amount of the 1L debt.

BBDC: Endo International (B3/B) — Refinancing

A J.P. Morgan-led arranger group this morning launched a $2.295 billion term loan B for Endo International, proceeds of which would help refinance the borrower’s approximately $3.3 billion term loan due 2024. The arrangers circulated price talk of L+425, with a 0.75% floor and a 99–99.5 OID. The seven-year loan would include six months of 101 soft call protection. The proposed coupon is the same as the existing term loan due 2024. The issuer would refinance the balance of the loan with $1 billion of other first-lien debt. J.P. Morgan, RBC Capital Markets, Goldman Sachs, BofA Securities and Barclays are arranging the loan. Commitments are due by noon ET Thursday, March 11. Barings BDC holds $4.8M in principal amount of the company’s existing 1L debt due 2024.

BBDC, FSK: Kenan Advantage Group (Caa1/B-) — Refinancing

KeyBanc Capital Markets outlined talk of L+375 with a 0.75% floor and a 99.5 offer price on the $1 billion term loan B for Kenan Advantage Group. Proceeds of the five-year covenant-lite term loan B will refinance debt. The loan will include a springing maturity 91 days in advance of that of Kenan’s $405 million issue of 7.875% senior notes due July 31, 2023. The loan will amortize at 1% and includes six months of 101 soft call protection. Commitments are due at noon ET Friday, March 12. FS KKR $19.2 million in principal amount of the senior notes. Barings BDC holds $4.3M of the company’s existing 1L debt due July 2022 (L+300).

BBDC, Guggenheim: Playtika (Ba3/BB-) — Refinancing

Investors received allocations of Playtika’s $1.9 billion term loan (L+275, 0% floor), which was issued at 99.5. BofA Securities was left lead on the deal, which priced tight to talk with a $100 million upsize to fund GCP. Proceeds, along with new bonds, refinance the mobile gaming concern’s $2.375 billion term loan (L+600, 1% floor) on the heels of its recent IPO. Holders of the existing 1L debt due December 2024 include Barings BDC with $3.9M in principal amount and Guggenheim Credit Income Fund with $1.2M.

ORCC, PSED: Shearer’s Foods (B2/B-) — Repricing

Investors received allocations of the repriced $1.075 billion term loan for Shearer’s Foods (L+350, 0.75% floor), which was issued at par. Credit Suisse was left lead on the deal, which priced at the wide end of guidance. Via the transaction, the issuer is lowering the margin from L+400. Shearer’s Foods is a snack manufacturer controlled by Ontario Teacher’s Pension Plan. Holders of the company’s 2L debt due September 2028 (L+775) include Owl Rock Capital Corp. with $120M in principal amount, Owl Rock Capital Corp. II with $50M and Prospect Capital Corp. with $5M.

FSK, PSEC, WHF, CION: Sorenson Communications (B3/B-) — Refinancing

Credit Suisse, Blackstone, and KKR Capital Markets this morning launched a $600 million term loan for Sorenson Communications, guided at L+550-575 with a 0.75% floor and a 98.5 OID, according to sources. Proceeds would refinance existing debt. The five-year loan would carry six months of 101 soft call protection. Terms include a first-lien net leverage covenant and annual amortization at 10%. Commitments are due by 5 p.m. ET Thursday, March 11. Holders of the company’s 1L debt due April 2024 (L+650) include FS KKR Capital Corp. $11.6M in principal amount, FS KKR Capital Corp. II with $64.1M, Prospect Capital Corp. with $7.6M, Prospect Flexible Income Fund with $1.2M, WhiteHorse Finance $4M and CION Investment Corp. with $11.8M. In addition, FS KKR Capital Corp. holds $17.3M of the company’s 2L debt due April 2025 (L+1,150 Max PIK) and an equity stake valued at $41.3M. FS KKR Capital Corp. II holds $16.4M of the 2L debt and an equity stake valued at $39.2M. – Thomas Dunford

homas.dunford@levfininsights.com

212.205.8552

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