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LevFin Insights BDC Portfolio News 9/21/2020

Posted on September 28, 2020

ARCC, BCSF, NMFC and GBDC hold debt targeted for refinancing across several issuers

Opportunity kept knocking last week with a parade of issuers tapping busy loan and bond markets to refinance debt amid welcoming conditions in the run-up to the U.S. election. As investors face a recent flood of opportunistic repayments and looming quarter-end amortization, the loan market has become so accommodating—at least in the near term—that the edge secured bonds have had over the past couple of years has eroded.  

With the bond market drowning in new issues, issuers and arrangers pivoted to take advantage of the scarcity factor in loans, with several issuers reducing institutional exposure via the high-yield bond market and an active new-issue CLO market creating excess demand. Accounts also had plenty of dry powder following a trio of large repayments in the week before Labor Day that collectively totaled about $6.6 billion: Royalty Pharma, at $2.84 billion, with proceeds from the issuer’s recent high-grade bond execution; Vertafore, at $2.435 billion, which was repaid as investment-grade Roper Technologies acquired the business; and Ellie Mae, $1.315 billion, which was acquired by investment-grade Intercontinental Exchange.

Issuers shifting secured bonds to loans last week included Consolidated CommunicationsMichaels Stores and Pactiv Evergreen/Reynolds Group. Note in all three instances the term debt cleared inside the secured bonds: Consolidated Communications, at 6.16% for the loan versus 6.5% for the bonds; Michaels Stores, at 4.59% for the loan versus 4.75% for the bonds; and Pactiv Evergreen, at 3.59% for the loan and 4% for the bonds. By comparison, concurrently issued secured bonds issued this year have printed, on average, 14 bps inside of the adjoining term loans.

While the loan market did cool off a bit in the latter part of the week with a flurry of allocations—most notably, Delta SkyMiles’ $3 billion TLB, which was the largest new-money deal to allocate since United MileagePlus’ $3 billion loan allocated in late June—the continued rush of bond deals to repay loans has helped bolster the secondary loan market in the face of stock market volatility: In the month to date, the Credit Suisse Leveraged Loan Index has returned 1.29%.


Portfolios in brief: Holds reflect most recent reporting period available

AB Private Credit Investors, PSEC: AHEAD (B2/B) — LBO

An RBC Capital Markets-led arranger group this launched $785 million of first-lien term debt backing Centerbridge Partners’ planned acquisition of a majority stake in AHEAD from Court Square Capital Partners. A lender call is scheduled for 1 p.m. ET Thursday, Sept. 24. The first-lien term debt is split between a $675 million funded tranche and a $110 million delayed-draw component. The issuer is also putting in place a $115 million revolver and a $235 million second-lien term loan, which has been placed privately. RBC, Deutsche Bank, Barclays, KKR Capital Markets and Macquarie Capital, Truist, Regions and TD Securities are arranging the loan. Funds managed by Berkshire Partners will purchase a minority stake in AHEAD, while the company’s management team will continue to own a “significant” position in the business, according to a press release. AB Private Credit Investors holds $5.4M in principal of AHEAD’s 1L term debt due November 2024 (L+475, 1% floor) together with $147,886 of revolver debt (P+375, 1% floor). Prospect Capital Corp. holds $70M of the company’s 2L debt due November 2025 (L+850, 1.5% floor).

Audax, ARCC, BCSF, CGBD: Aimbridge Hospitality (B3/CCC+) — incremental

A J.P. Morgan-led arranger group launched a $150 million nonfungible incremental term loan for Aimbridge Hospitality. Proceeds are for general corporate purposes. The nonfungible term loan due February 2026 is talked at L+600 with a 0.75% floor in a range of 97-98. The loan will include six months of 101 soft call protection. The issuer last tapped the market in November 2019 for a $425 million fungible add-on to its term loan due February 2026 (L+375, 0% floor) to support the acquisition of Interstate Hotels & Resorts. Sponsor Advent International, which purchased a majority stake in Aimbridge earlier in the year, contributed $300 million of new cash equity, while a $75 million privately placed second-lien term loan rounded out the financing. Audax Credit BDC holds $3M in principal amount of the company’s existing 1L debt. Holders of the company’s 2L debt due February 2027 (L+750) include Ares Capital with $22.5M, Bain Capital Specialty Finance with $20.2M and TCG BDC with a combined $30.3M.

OCSI, BDVC: Avaya (B2/B) — extension

Investors received allocations of the $800 million extended term loan for Avaya (L+425, 0% floor). The extended loan was priced at 98; lenders were offered a 200 bps extension fee. J.P. Morgan was left lead on the deal, which priced in line with talk. The issuer is extending by three years $800 million, or approximately 48%, of the loan left outstanding pro forma for an expected $970 million repayment with proceeds of its recently issued $1 billion issue of 6.125% notes due 2028. The adjoining amendment requests adds portability to the loan to match the newly issued bonds. Holders of the company’s 1L debt include Oaktree Strategic Income Corp. with $9M in principal amount and Business Development Corp. of America with $20.1M.

Audax, CCAP: Cambium Learning (B3/B-) — M&A

An arranger group led by RBC Capital Markets provided the debt financing commitment supporting Cambium Learning Group’s acquisition of NYSE-listed Rosetta Stone. The $30-per-share transaction, representing a total purchase price of roughly $792 million, was announced Aug. 31. The companies anticipate completing the transaction in the fourth quarter. The transaction will be financed with a $425 million incremental first-lien term loan, a $150 million incremental second-lien term loan, cash from the balance sheet, and equity from sponsor Veritas Capital. A lender call is scheduled for 10 a.m. ET Wednesday, Sept. 23. Cambium was last in market in November with a $295 million fungible add-on to its first-lien term loan, with proceeds backing the firm’s acquisition of AIR Assessment. Today, the company has a $609 million first-lien term loan due December 2025 priced at L+450 with a 0% floor and a $223 million second-lien term loan due December 2026 priced at L+850 with a 0% floor. Audax Credit BDC holds $2.5M in principal amount of the existing 1L debt, and Crescent Capital BDC held $5M of the 2L debt.

ARCC, NexPoint, OCSL, OCSI: Global Medical Response (B1/B) — refi

A KKR Capital Markets-led arranger group set talk of L+450-475 with a 1% floor and a 98 offer price on Global Medical Response’s $1.37 billion term loan due 2025. The issuer, formerly Air Medical Group, is also tapping the market for $500 million of secured notes, with Morgan Stanley as left lead on the bonds. Proceeds will refinance Global Medical Response’s $1.87 billion term loan B due April 2022. Commitments are due at 5 p.m. ET Sept. 24. The issuer last tapped the market in 2018 with a repricing to L+325 with a 1% floor that collapsed the issuer’s two term loans into a single tranche that at the time totaled $1.92 billion. Ares Capital Corp. holds $1.7M in principal amount of the 1L Air Medical Group due April 2022, together with $182.7M of the company’s senior subordinated debt due March 2026 (L+788) and warrants to purchase equity valued at $1.4M. Holders of Global Medical Response’s 1L debt due March 2025 (L+425, 1% floor) include NextPoint Capital with $3.4M, Oaktree Specialty Lending Corp. with $6.3M, Oaktree Strategic Income Corp. with $2.5M and Oaktree Strategic Income II Inc. with $1.1M.

Hancock Park, BDVC, ORCC: Hyland Software (B2/B-) — incremental, M&A

A Credit Suisse-led arranger group  set a 99.3-99.5 offer price on the $664 million incremental first-lien term loan for Hyland Software backing the company’s planned acquisition of Alfresco, a content services platform and solutions provider. The incremental debt will have same July 2024 maturity and coupon (L+350, 0.75% floor) as the existing loan. The $1.713 billion existing first-lien loan is currently priced at L+325 per the step-down at 4.75x net first-lien leverage, but is poised to reset to L+350 in connection with the transaction, though the step will remain in the deal. Lenders are offered six months of 101 soft call protection. Credit Suisse, Goldman Sachs, UBS, KKR Capital Markets and Stone Point are arranging the loan. Commitments are due at 5 p.m. ET Thursday, Sept. 24. Hancock Park Corporate Income holds $21,844 of the existing 1L debt. Holders of the company’s 2L debt due July 2025 (L+700) include Business Development Corp. of America with $6.9M, Hancock Park Corporate Income with $333,469, Owl Rock Capital Corp. with $28.1M, Owl Rock Capital Corp. II with $9.4M and Owl Rock Technology Finance Corp. with $37.4M.

BCSF, NMFC: Netsmart Technologies (B3/B-) — refi, M&A

Goldman Sachs outlined talk of L+400-425 with a 0.75% floor and a 98.5-99 offer price on the $915 million term loan B for Netsmart Technologies, which would refinance the issuer’s existing first- and second-lien term loans and support an acquisition. Lenders are offered six months of 101 soft call protection. The financing also includes a $100 million revolver. Commitments are due Monday, Sept. 28. Holders of the company’s 2L debt due October 2023 (L+750) include Bain Capital Specialty Finance with $2.7M and New Mountain Finance with $15M.

GBDC: Southern Veterinary Partners (B3/TBD) — refi

Jefferies launched a comprehensive refinancing for Southern Veterinary Partners, setting a lender call at 11 a.m. ET Tuesday, Sept. 22. The deal will include a $30 million, five-year revolver, a $435 million seven-year first-lien term loan, a $60 million delayed-draw term loan that will be sold as a strip with the funded term loan, and a $140 million eight-year second-lien term loan. The delayed-draw tranche would be available for 18 months. The first-lien strip includes six months of 101 soft call protection, while the second-lien tranche carries 102, 101 hard call premiums. The issuer’s current debt includes a Golub Capital unitranche due May 2025 and priced at L+600. Golub Capital BDC holds a combined $28.1M of the unitranche debt, and Golub Capital BDC 3 holds $7.2M. 

Download LFI BDC Portfolio News 9-21-20 for BDC investment details provided by Advantage Data; click through links to view stories by LFI. — Thomas Dunford


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