LONDON, Oct 25 (LPC) - Data provider Kantar has allocated a €3.08bn-equivalent leveraged financing backing its buyout by Bain Capital, but only after making wholesale changes after push back from investors on what they saw as an aggressive structure.
A lukewarm response from the loan market meant that the loans were cut to US$1.4bn-equivalent from US$2.1bn-equivalent, while the bonds were increased to €1.475bn from around €700m so the total debt raised is unchanged.
Kantar was also forced to hike pricing on the loans and make covenants more investor-friendly across the entire financing in order to get its the deal over the line.
“In hindsight, this is what they should have launched the deal with,” one analyst said of the changes.
Kantar scaled down some of the flexibility in the debt baskets and restricted payments. The company added material intellectual property explicitly as it was something investors wanted in the security package.
“Part of reason why the loans struggled is there’s not a lot of security for loan investors if things go wrong,” an investor said.
The company also added an Ebitda cap at 25% and reduced the time limit for add-backs to 18 months, down from 24 months. Finally, the most aggressive asset-sales provisions were watered down.
Kantar had already been through one round of disagreement with investors over its covenants. On October 18 it removed the net-short disenfranchisement language, among a number of other changes.
“It’s clearly been a struggle,” said another investor. “There’s a lot of talk about the weakness of the Single B loan market in the US. It begs the question: how much of this is the deal itself, and how much of it is the state of the loan market?”
Still, the investor said, Kantar did not help itself coming out with a deal that “required a wholesale covenant rewrite”.
“The credit is a difficult one to buy into,” he said. “The equity cheque Bain is writing is tiny. People have looked at this relatively small contribution and thin equity cushion – and the leverage – and just said no.”
The equity contribution from Bain is just about US$915m or 23% of the debt structure, according to the company presentation. That is way lower than the 40% level in most buyout deals.
Kantar’s main revenue contributor, its Insight division, which provides data services to consumer brands, is vulnerable to a change in the economic cycle, Moody’s said in a report.
The division declined by a CAGR of 3.3% over 2016-18 on a constant-currency basis, Moody’s said, adding a budget cut from consumer clients in an economic downturn could affect Kantar.
The low equity cushion also put Kantar at high starting leverage position with limited financial flexibility, Moody’s said.
S&P said in a September 30 report that through 2020-2021, Kantar’s adjusted debt to Ebitda will be at about 6.5-6.7 times.
Despite that, as the third-largest market research firm by revenue behind Nielsen Holdings and IQVIA, there were good reasons to support the deal - not least the attractive spreads on offer from the bonds.
That interest allowed Kantar to increase its seven-year senior secured notes to €1bn from a revised size of €750m and an original size of €220m at launch. Its €475m eight-year senior unsecured notes were unchanged.
Pricing is 5.75% on the secured and 9.25% on the unsecured slice.
“We prefer the unsecured tranches as we believe that the subordination spread is attractive,” said Spread Research credit analyst Djivan Torossian.
Bond investors are currently willing to take a punt on in the primary market, even on companies with relatively weak credit profiles.
“The market is more receptive to devil they don’t know in primary rather than devil they do know. There are a lot of assets you can buy north of 5% on a secured basis in the secondary market but those names perhaps have a familiarity,” one bond investor said.
The loan package comprises a US$300m five-year Term Loan A, a US$280m seven-year Term Loan B and a €725m seven-year Term Loan B. There is also a US$400m revolving credit facility. The dollar TLB priced at 500bp over Libor with a 0% floor and a 96 OID, and the euro TLB at 500bp over Euribor with a 0% floor and a 97 OID.
The OID on the TLBs were widened from revised guidance of 98 and from 99 at launch, respectively, while the margin finalised at the wide end of 475bp-500bp revised guidance. The TLBs launched at 425bp-450bp.
The TLA priced at 425bp over Libor with a 0% floor and at a 98.5 OID.
On the loans, Bank of America was lead left on the dollar-denominated debt and Goldman Sachs led the euro-denominated portion of the transaction.
On the bonds, Goldman Sachs and Morgan Stanley were active books on the secured euro bond, and Morgan Stanley on the unsecured. BofA was joint GloCo and books.
Bain Capital announced in July that it agreed to acquire a 60% stake in Kantar from advertising and public relations company WPP. The transaction values Kantar at a headline enterprise value of roughly US$4bn. (Editing by Christopher Mangham)