| NEW YORK, June 14
NEW YORK, June 14 Some institutional investors
are dismissing the debt package backing Securus Technologies’
US$1.7bn leveraged buyout due to a first-out revolving credit
facility, even as thin dealflow and favorable prison policies
under the Trump administration position the provider of inmate
telecom and ancillary services to turn the page on its choppy
history in the leveraged loan market.
Lead underwriter Deutsche Bank is seeking commitments on the
debt, which will fund the company’s acquisition by Platinum
Equity, by June 15. In addition to the US$150m five-year
first-out revolver, the financing consists of an US$870m
seven-year first-lien term loan and a US$280m eight-year
second-lien term loan. Price talk on the first-lien term loan
opened at 375bp-400bp over Libor with a 1% Libor floor and a
99.5 original issue discount. The second-lien term loan is
guided at 800bp-825bp over Libor with a 1% Libor floor and a 99
The bank has been in discussions around the structure, as
several potential first-lien lenders have submitted orders
subject to a revised revolver, or higher pricing if the deal
remains as proposed. The second-lien was pre-marketed and is
oversubscribed, having been placed in part with some of
Platinum’s relationship accounts, said a source.
“Securus has a super senior revolver…worse than an ABL,” a
The pushback is partly technical, given the existing lender
base comprises a number of Collateralized Loan Obligations (CLO)
that have limitations on the amount of junior lien debt they can
“Those constraints feed into market capacity,” a source
said. “The question is whether there are enough new buyers where
Buyout financings are commonly packaged with pari passu
revolvers, putting the loans on equal footing with other
first-lien debt in terms of claims on collateral. However, deals
for certain industries, such as retail, are structured with
asset-based loan (ABL) revolvers, which offer a first priority
claim on working capital including accounts receivable and
While institutional investors are generally averse to
financings with ABL revolvers because they subordinate their
claims on a company’s most valuable assets, their loans still
provide for a first-lien on collateral that does not secure the
revolver. But first-out facilities have a first priority claim
on overall collateral, meaning in cases like Securus, first-lien
lenders effectively have a second priority and second-lien
lenders are left with a third priority. Whether the banks or the
sponsor pushed for the structure, it makes a statement about
those parties’ perception of the deal’s credit risk.
The revolver will be drawn by US$20m at the close of the
The revolver is rated BB/B1 by Standard & Poor’s and
Moody’s, respectively. The first- and second-lien tranches are
rated B/B2 and CCC+/Caa2. The issuer is rated B/B3.
Securus is touting pro forma adjusted Ebitda of US$191m for
the trailing 12 months ending March 31, which includes US$10m of
synergies, for leverage at roughly 4.7 times through the
first-lien debt and 6.0 times total, sources said.
The new owner will contribute US$487m in new equity, while
management will roll over around US$35m of their existing
stakes, accounting for roughly 31% of capitalization, the
The debt load has catalyzed concerns among some potential
investors, especially since the company is still exposed to
regulatory uncertainty, which in the past has caused its debt to
trade even at distressed levels.
On the regulatory front, Securus has historically been
targeted by the Federal Communications Commission for excessive
charges. The agency’s most recent attempt at reforming them, by
proposing caps on intrastate phone rates, was stayed following
changes in FCC leadership under the Trump administration,
pending a final ruling expected by the end of 2017.
Other tailwinds have arisen for now, including the unwinding
of the Department of Justice’s plan under former President Obama
to phase out the federal government’s use of private prisons,
and Presidents Trump’s resolve to take a hard line on
immigration and low-level crimes, which would likely spur growth
of the prison population.
“Secularly, there are some positive trends for the sector.
But as with just about any regulatory risk, I generally don’t
believe the new administration has completely eliminated any
threat here,” a source said.
A Deutsche Bank spokesperson declined to comment. Platinum
Equity did not respond to requests for comment.
(Reporting by Andrew Berlin; Editing By Leela Parker Deo and