At a time when middle market leveraged loans are
increasingly being clubbed between a handful of lenders that
have existing relationships with financial sponsors, both the
size and nature of the transaction necessitate a more
institutional-style execution, banking sources said.
"No covenant means the company needs to execute the deal in
the broadly syndicated institutional market," said one middle
market lender, adding that at approximately 5.0 times total debt
to Ebitda, leverage is at the upper end for a deal comprised of
only senior debt. Ebitda is approximately US$78.1m.
Covenant-lite loans carry fewer protections for lenders.
Refinancing into an all-senior capital structure also
suggests the sponsor opted not to put in place higher costing
junior capital in the form of second-lien or mezzanine debt.
The new capital structure affords the company a lower cost
of debt and more flexibility, sources said.
With this transaction, Augusta, a portfolio company of
private equity firm Kelso & Company since 2012, is also lining
up a fresh group of lenders, said sources, making a broad
distribution effort more attractive in terms of creating an all
new bank group.
Antares Capital is arranging the deal. The transaction
launched to institutional investors on October 6. Commitments
are due October 20 with closing and funding expected on October
Price guidance on the US$395m term loan launched at 450bp
over Libor with a 1% Libor floor, sources said. The term loan is
offered at a 99 original issue discount and has 101 soft call
protection for six months.
Middle market institutional term loans are yielding
approximately 6.33%, on average, according to Thomson Reuters
LPC data, compared to 4.97% for large corporate broadly
syndicated term loans. By comparison, unitranche loans typically
yield between 8-9%.
Augusta inked its existing unitranche loan via the Senior
Secured Loan Program (SSLP), the former GE Capital and Ares
Capital Corp joint venture that provided unitranche loans to US
middle market companies.
The unitranche structure, which combines senior and
subordinated debt into one credit instrument at a single blended
cost of capital, has traditionally been used for small to
mid-sized buyouts. Since the beginning of 2015, a significant
majority of unitranche deals have ranged from between US$100m
and US$300m in size, averaging about US$175m.
The structure is favored among sponsors for its ease of
execution and certainty of funding, in particular in volatile
Only recently has the structure gained appeal for larger
deals, most notably the record US$1.075bn unitranche loan that
backed Thoma Bravo's US$3bn take-private acquisition of data
analytics firm Qlik Technologies. The loan was led by Ares
Capital Corp along with joint arrangers Golub Capital, TPG's
credit specialist TSSP and Varagon Capital Partners, and
finalized with a spread of 825bp over Libor with a 1% Libor
Augusta last raised debt in the syndicated market in 2008
with a first- and second-lien credit facility that backed the
company's buyout by Quad-C Management. GE Capital led the
US$302.5m deal, split between a US$50m revolver, a US$172m
first-lien term loan and a US$80.5m second-lien term loan.
In 2012, when Quad-C sold the company to Kelso & Co, the
sponsor-to-sponsor acquisition financing was provided by the
SSLP. GE Capital and Ares Capital, via the SSLP, provided
Augusta with a US$367m senior secured term loan as joint lead
arrangers and joint bookrunners, according to an August 2012
press release. The SSLP provided US$300m, and US$67m was
provided directly by Ares Capital.
Kelso & Co declind to comment. Antares Capital did not
immediately return a call for comment.
(Reporting by Leela Parker Deo; Editing By Jon Methven and