LevFin Insight: Power Solutions outlines doc terms as loan, bond books build
Earlier today on LFI: With pricing of JCI/Power Solutions’s cross-border loan and bond deal expected toward the end of the week and investor interest running high, it remains to be seen if the transaction’s documentation will require revisions. However, a move to substantially upsize the U.S. dollar loan–as some buysiders have theorized is coming–could open the door to investor-friendly concessions.
The $3.2 billion U.S. dollar tranche of the $5.45 billion-equivalent cross-border term loan backing Brookfield Asset Management and Caisse de dép?t et placement du Québec’s $13.2 billion purchase of the business under the moniker Panther BF Aggregator 2 LP was said to be 2.5x oversubscribed late last week in line with talk of L/E+400-425 at 98.5.
The issuer is seeking an 18-month sunset on the 50 bps of MFN protection, based on the preliminary term sheet offered to investors last week. MFN protection only applies to ratio prong on loans of greater than $550 million, while carving out the free-and-clear incremental facility, loans tied to M&A and those maturing greater than one year beyond the original loan. Moreover, the transaction also includes a $1 billion inside maturity carve out.
Incremental facilities include a $1.33 billion F&C with a 0.8x grower. That’s roughly in line with the recent trend, according to LFI sister publication Covenant Review. On average, the dollar cap of free-and-clear incremental tranches stood at 0.76x pro forma EBITDA during the last three months, effectively unchanged from the fourth quarter but inside the recent highs when a greater proportion of the market was set at 1x, Covenant Review found.
The ratio prong allows for additional debt up to closing first-lien leverage, with a provision for junior debt set half a turn wide of closing first-lien leverage and unsecured debt allowable at either half a turn wide of closing total net leverage or 2x interest coverage. As noted earlier, leverage is 4.9x/6.1x off of $1.66 billion of marketed EBITDA, with a $10.15 billion debt quantum and $2.95 billion of equity. The secured debt drew ratings of Ba3/B+/BB from Moody’s, S&P and Fitch, respectively.
The credit agreement posted to accounts today offered additional detail around the EBITDA definition, which includes a 24-month look foward with a 30% cap on pro forma cost savings and synergies, sources said.
Asset-sale stepdowns, typically a hot button issue for investors, are proposed at 50% at 0.5x inside closing first-lien net leverage, with a step to 0% at 1x inside closing first-lien net leverage. The issuer also would have 18-month reinvestment period for asset sales with a six-month extension. In its report on covenant flex trends released today, Covenant Review found that only 35.3% of transactions it assessed over the three months ended Feb. 28 included the stepdown provision at launch, and stepdowns were eliminated in 66.7% of those cases.
Another potential issue is the restricted payments provision. While the starter is basket $700 million, the proposal’s grower includes seven additional provisions as originally outlined.
On the other hand, the issuer is already offering quarterly calls, a provision that investors had to ask for in certain other transactions over the past few weeks, sources noted.
Meanwhile, momentum has been building for the approximately $4.7 billion cross-border high-yield bond transaction. Market sources relayed late last week that the bond deal is already oversubscribed across all tranches, which include $2 billion of seven-year first-lien notes, $750 million equivalent of euro first-lien notes and $1.95 billion of eight-year unsecured notes.
Demand grew quickly this past week in the context of early whispers in the low 7% context and low-to-mid-9%. It’s a large liquid new-money, 2019 marquee LBO bond that offers a healthy pickup to market metrics—average clearing yield is 6.69% in the year to date for non-investment-grade, per the LevFin Insights tally, and average yield to worst for the ICE BofAML U.S. HY Index is 6.70% as of market close on March 7—as well as comparable credits.
Like the recent deal for Refinitiv, the proposed loan and secured bond transaction includes limited use portability that’s bled over from the European secured bond market, in this case applicable on first-lien leverage of less than 4.5x. That provision passed muster in the earlier transaction, which also included a mix of U.S. and euro-denominated first-lien loans and bonds. - Chris Donnelly
Please contact me with any questions or if you would like a free trial: [email protected]
Follow us on twitter: @levfininsights