LFI Daily Insights 1/11/18: SS&C pads calendar with $5.4B purchase of DTS; Community Health debt gains as Shanda boosts stake

SS&C’s announcement today of a $5.4 billion all-cash deal to buy DTS Systems promises much-needed new debt—eventually—for leveraged finance investors that are clearly in risk-on mode in the early days of 2018 but aren’t yet seeing enough transaction flow to satisfy demand.

The M&A-related loans already launched are racking up strong demand; Crown Holdings’ $1.25 billion U.S. dollar term loan was said to be twice oversubscribed earlier today, with arrangers socializing new talk that’s tight to the advertised L+225, with a 0% floor, at 99.75. Likewise, Meredith Corp.’s $1.8 billion term (L+325, 0% floor, at 99.5) loan drew oversubscription a week ahead of the Jan. 17 deadline. As well, Arby’s $1.575 billion term loan (L+375, 1% floor at 99.5) was said to be full, although many accounts are still engaged in credit work on the transaction, which also includes a securitization.

When SS&C arrives—closing is expected by the third quarter—the deal will be large. Credit Suisse and Morgan Stanley have committed to provide the required debt financing. The combined entity would generate $1.3 billion of pro forma adjusted EBITDA including cost savings, and SS&C said in an investor presentation that closing leverage would be in the low-5x range. That suggests at least $6.5 billion of total debt. SS&C’s $2.17 billion of debt includes $600 million of senior notes, with the rest in loans. Moreover, the issuer said financing would be in a mix of equity and bonds, suggesting SS&C is focused on maintaining its Ba3/BB corporate ratings.

Elsewhere, Concentra’s $555 million first-lien M&A add-on loan came off the forward calendar as a lender call was slated for tomorrow. A planned $240 million second-lien loan, however, is taking a privately placed route instead of coming to market. As well, a €2.125 billion cross-border term loan backing Altran Technologies’ planned $2 billion acquisition of KKR-controlled Aricent was launched today, with meetings set for Tuesday, Jan. 16, in London and for Wednesday, Jan. 17, in New York. New activity expanded LFI’s "net net" new money pipeline to $10.3 billion.

Loan issuers took advantage of demand, with U.S. Anesthesia adding a repricing of its $950 million first-lien term loan to the mix as it raises a $190 million fungible add-on for acquisitions; the margin would move to L+300, from the current L+325 with a 25 bps step at 4x net first-lien leverage. DexKo Global tightened to par from 99.75 the add-on dollar loan alongside a cross-border repricing. Also, WEX is increasing its add-on loan deal to $150 million, from $100 million, also in concert with a repricing of the issuer’s $1.185 billion term loan and a multi-faceted amendment request.

Bonds were pushing forward today with a long-awaited RCN Grande/Radiate Holdco launched to market as $300 million for next week’s business and the $350 million Ardagh secured PIK notes placed today. Terms on the latter were at 8.75% and par, the tight end of talk, and trades were reported at 100.5 on the break.

Moss Creek Resources is shopping at 7.25%–7.5% price talk a debut in market with a $650 million to help fund refinancing efforts. The independent oil-and-gas E&P concern seeks capital to repay and terminate existing term debt and a portion of a revolving-credit line, pay related fees, and fund some general corporate purposes. Structure is planned to be eight-year (non-call three), with a first call premium of par plus 75% of the coupon to balance the short schedule. Ratings are B3/B+, and with guidance some covenants were tightened up, such as those related to debt-incurrence and permitted investments, according to sources.

In the secondary, Community Health Systems’ bonds were big movers after the company’s largest shareholder, Shanda Group, increased its equity stake in the hospital operator. The Chinese firm owns 24% of Community Health Systems’ outstanding stock.

The company’s 8% 2019 bonds—which the company has said would likely be refinanced—gained 3.75 points to 90.75, while its 6.875% 2022 paper rose 4.51 points to 64.26. The company’s loans continued to grind higher, with the TLH due 2021 (L+300, 1% floor) rising about a half-point, to 97.375–97.875. Note the paper is up at least two points from the start of the week. Shares of Community closed up 24% to $4.97 on the NYSE.

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