LevFin Insight: Alongside addition of secured notes, CommScope reins in loan documentation to reflect cooler market conditions
2/6/19: CommScope’s M&A financing offers a window into how some transactions are being revised from their original underwriting terms amid volatile conditions that have roiled the new issue loan market over the past couple of months. CommScope not only reduced the size of its planned loan with the addition of secured bonds and revised pricing levels on the now $3.689 billion term loan, it also scaled back document terms from those outlined in the original commitment in SEC filings.
In the most notable change beyond the introduction of $2 billion of secured notes, a planned six-month sunset on 75 bps of MFN protection was revised to a 12-month sunset on 50 bps; Altice USA is a rare example of an issuer that is still pushing for 75 bps of MFN protection in 2019, where other issuers have scaled back their expectations almost uniformly to 50 bps and pushed out the time from to 12-24 months. As originally committed, MFN would have included a fixed-dollar carve out to the full amount of the free-and clear basket, and the provision would not have applied to M&A loans or those with a two-year outside maturity.
Moreover, incremental facilities have been reined in alongside the decision to carve-out secured notes from the original $5.5 billion loan commitment. The free-and-clear incremental facility, for example was reduced to $950 million, from a planned $1.9 billion. The grower was scaled back to 0.5x EBITDA, from 1x.
In addition, ratio levels were trimmed somewhat with the first-lien basket moving to 3.25x, from 3.5x, secured reduced to 3.75x, from 4x, while the 6.5x total debt basket was unchanged.
The F&C reduction flows through to other elements of the credit agreement. For example, the starter basket is now the greater of $900 million or 0.465x EBTIDA, with a grower that includes 50% of consolidated net income, sources noted.
The original commitment allows for asset-sale repayment step-downs to 50% at 2x net first-lien leverage and to 0% at 1.5x. It wasn’t immediately clear if those levels had been revised. And, indeed, some aggressive elements remain, including the ability to repay junior debt
Official terms of the loan and bond deal are expected to emerge tomorrow. With all components of the transaction well oversubscribed, further documentation changes are unlikely, save those that would stem from any shift to secured from unsecured debt.
As noted earlier, official talk emerged today tight to whispers across all three tranches of the $3 billion bond deal. The five-year (non-call two) first-lien tranche, for instance, was being marketed at 5.5%–5.75% price talk, versus early targets after the launch to market last week around 6%, according to sources.
Also at first-lien, a seven-year (non-call three) series was being guided at 6%–6.25%, while at unsecured, an eight-year (non-call three) tranche was talked in the 8.5% area, the sources added. Both were also inside of early market whispers by 25 bps. The split remains $1 billion equally across the three tranches, and pricing is expected tomorrow, Thursday, Feb. 7, after books close at end of day today.
The $3.689 billion term loan, meanwhile, may firm tight to talk after launching at L+325-350 with a 98 OID. Note that the loan was originally outlined at L+250 in the November SEC filing. - Chris Donnelly
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