October 13, 2017 / 3:55 PM / 9 months ago

LPC: Debut US leveraged loan issuers face headwinds despite investor appetite

NEW YORK, Oct 13 (Reuters) - Two leveraged loans for first-time US issuers, online marketing services company Red Ventures and coal ash management company Charah LLC, are struggling in syndication with credit concerns, despite a strong market backdrop, several market participants said.

The banks arranging the financings are trying to boost demand with pricing and potential structural changes, sources close to the deals said, as US investors show greater sensitivity to dividend payments and business concentration.

The challenges selling the debt come even as loan market conditions remain robust and investors continue to prefer new money transactions.

Silver Lake Partners and General Atlantic-backed Red Ventures has been shopping a large US$2.4bn first- and second-lien loan facility that it will use to fund its US$1.4bn purchase of online personal finance content provider Bankrate and refinance existing debt, sources said.

Bank of America Merrill Lynch leads with Barclays, Citigroup, Credit Suisse, Fifth Third, Mitsubishi UFJ Financial Group and PNC.

BAML has widened price talk on both tranches, a source close to the deal said. The first-lien is now guided at 400bp over Libor with a 0% floor and a 99 original issue discount, up from opening guidance in the 325bp-350bp range with a 0% floor and a 99.5 original issue discount (OID).

Pricing on the second-lien was widened to 800bp over Libor with a 0% floor and 98-98.5 OID, compared to the 725bp-750bp range with a 0% floor and 99 OID at launch.

BAML also extended the commitment deadline to October 13, from October 11 originally.

BAML, Silver Lake and General Atlantic declined to comment.

Prospective lenders have grappled with the time required to grasp the business and the company’s exposure to the telecommunications industry, which has delivered sluggish performance as subscribers increasingly opt for streaming services, sources said.

Some investors are also concerned about customer concentration risk, despite the Bankrate purchase and the end of an exclusivity agreement with Red Ventures’ two largest telecom customers providing gateways to diversification. The top five customers currently account for half of revenues, two sources said.

“The company is new to the loan market and there are no comps,” an investor said.

The deal levers the company at 4.5 times through the seven-year US$2bn first-lien loan and 5.4 times total, through the eight-year US$400m second-lien loan, based on US$441m of last 12 months’ adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization at August 31, two of the sources said.

The company is rated B2/B+, while the first-lien is rated B1/B+ and the second-lien is rated Caa1/B-.


Coal ash management firm Charah is also in the market with a seven-year US$250m first-lien loan backing a dividend recapitalization that will finance a US$115m distribution to shareholders including private equity firm Bernhard Capital Partners (BCP) and refinance existing debt.

Credit Suisse, which is leading the deal, is in the process of sorting out new terms after the initial October 11 commitment deadline passed, a source said.

Credit Suisse declined to comment. BCP did not respond to requests for comment.

Price talk opened in the 550bp-575bp over Libor range with a 1% floor and 99 OID. The deal is structured with accelerated amortization of 5% per year, compared to the standard 1%.

Investors raised eyebrows at the timing of the dividend as BCP bought the company roughly a year ago, as well as the sponsor’s limited track record and high customer concentration – its top two customers comprise roughly 80% of gross profit, sources said.

Charah also could lose over 10% of its gross profit if coal-fired power plants are idled or regulated into extinction, two of the sources said.

“I need to get comfortable that the plants will be running and the new business will ramp well,” an investor said.

The transaction will nearly double Charah’s leverage to 3.1 times, from 1.6 times currently, based on its US$81m of last 12 months’ adjusted Ebitda at August 31, according to a source close.

The company and loan are rated B2/B+. (Reporting by Andrew Berlin; Editing By Michelle Sierra and Tessa Walsh)

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