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 26.
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 market conditions.
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 floor.
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 Chris Mangham)