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LevFin Insights BDC Portfolio News 5/10/21

Posted on May 11, 2021

Ensono markets LBO financing; existing debtholders include Morgan Stanley Direct Lending Fund, CGBD, PTMN

The pace of new-issue loan activity slowed considerably this week following a recent glut of supply, but market conditions haven’t yet resumed an issuer-friendly bias, as is evident in last week’s balanced flex ratio in which four issuers cut pricing and three deals widened. By contrast, the high-yield market remained incredibly busy despite a focus on quarterly reporters, and issuance is running ahead of last year’s record levels. 

The broader secondary market remained largely rangebound last week, with the average bid price of the Credit Suisse Leveraged Loan Index ending Thursday at 97.60% of par, little changed from May’s opening average bid price of 97.63. Earnings were a focal point for investors, with many companies posting solid results, but with 76.4% of the market bid at 98 or higher, per IHS Markit, there was little upside potential for many names.

Allocated volume took a breather from the past three weeks, each of which exceeded $10 billion of net new money. Pro forma for expected allocations of USIC Friday afternoon, LFI tracked about $12.4 billion of allocated volume last week for about $6.3 billion of net new money.

With CLO issuance still going strong and Refinitiv Lipper posting yet another solid week of inflows, at about $900 million, it stands to reason with the volume of deals plummeting compared with a few weeks ago, the secondary could grind higher in the coming weeks. LFI’s In Market calendar closed out the week at $8.1 billion for $6.6 billion of net new money. To put this in context, three weeks ago LFI was tracking $26.9 billion of loans for $21.2 billion of new money.

Last week’s M&A announcements yielded some fresh dollars for the forward calendar, though it still remains slightly in negative territory, at negative $1.6 billion, thanks to both the recent crush of allocations and some new large repayments, i.e. Kindred at Home and PPD, joining the calendar in recent weeks.

Specifics on the buyouts of At Home and Verizon Media that were announced over the past week have yet to circulate publicly but both are expected to be additive to the forward calendar—At Home previously exited the loan market with a secured bond deal so there’s no repayment here—whereas Gray Television and Meredith disclosed financing commitments that include $1.45 billion and $725 million term loans in connection with Gray Television’s planned $2.7 billion purchase of Meredith’s local media group, although note Meredith’s roughly $1.47 billion of existing loans are expected to be repaid here.

Portfolios in brief: Holds reflect most recent reporting period available

OCSL, OCSI: Generate Life Sciences (B3/B-) — M&A

Golub Capital set guidance of 99.03 for the OID on the $130 million first-lien add-on (L+400, 0% floor) to fund an acquisition by Generate Life Sciences. Commitments are due at noon ET Friday, May 14. The add-on will be fungible with the existing covenant-lite term loan due August 2025. The issuer was last in the market in August 2018 with $410 million of first-lien term debt that was issued at 99.5. The first-lien term loan was adjoined by a $40 million revolver and a $162 million second-lien term loan that was privately placed with Owl Rock Capital. Proceeds backed the buyout and merger of California Cryobank and Cord Blood Registry by GI Partners to form a platform providing donor reproductive tissue banking and umbilical cord/tissue stem cell collection and storage services. Holders of the company’s existing 1L debt include Oaktree Specialty Lending Corp. with $17.6M in principal amount, Oaktree Strategic Income Corp. with $3M and Oaktree Strategic Income II with $2M. Oaktree Specialty Lending Corp. holds $10M in principal amount of the 2L debt (L+750, 0% floor), and Oaktree Strategic Income II holds $2M.

Morgan Stanley Direct Lending Fund, CGBD, PTMN: Ensono (B3/B-) — LBO

Morgan Stanley, UBS, and KKR Capital Markets today launched a $723 million first-lien term loan backing KKR’s acquisition of Ensono. KKR last month agreed to acquire Ensono from Charlesbank Capital Partners and M/C Partners; the purchase price was not disclosed. Closing is anticipated in the second quarter. The issuer is also putting in place a $100 million revolver and a $250 million second-lien term loan, which will be placed privately. As reported, pro forma leverage would run about 6x. The company’s existing loans will be refinanced in connection with the transaction. The issuer’s existing loans, an originally $460 million first-lien term loan due 2025 (L+525, 0% floor) and a $123 million second-lien term loan due 2026 (L+925, 0% floor), date back to the company’s 2018 acquisition of acquisition of Wipro’s hosted data center services business. The 101 hard call protection rolls off the second-lien in June. The issuer later that year tapped the market for a $32.5 million add-on to the first-lien term loan, as previously reported, and last year placed a $76 million incremental loan to repay revolver borrowings and place cash on the balance sheet, according to Moody’s. Morgan Stanley is administrative agent. Holders of the 1L debt (L+525) include TCG BDC with $2.2M and TCG BDC II with $8.5M. Holders of the incremental debt (L+575) include Morgan Stanley Direct Lending Fund with $14.9M, TCG BDC with $18.1M and TCG BDC II with $18.1M. Portman Ridge Finance Corp. holds $1.7M in principal amount of the 2L debt.

Download LFI BDC Portfolio News 5-10-21 for BDC investment details provided by Advantage Data; click through links to view stories by LFI.

thomas.dunford@levfininsights.com

212.205.8552

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