NEW YORK, May 14 (Reuters) - Goldman Sachs and Credit Suisse sold $388 million loans backing the merger between fragrance sample providers Bioplan and Arcade Marketing at a loss this week on their third trip to the market, after a surprise decline in the company’s Ebitda numbers last fall led banks to fund the deal at close and rework it for future syndication, sources told Thomson Reuters LPC.
On the third attempt to sell the financing to investors, the banks shrank the size of the term loans they had originally put together last year to $388 million from $520 million by selling $90 million of first-lien debt and $40 million of second-lien debt back to the company to get leverage levels down, a banking source said.
Goldman Sachs led the first-lien loan while Credit Suisse led the second-lien. Barclays and Deutsche Bank were joint lead arrangers and bookrunners. Banks also provided a $65 million revolver to back the merger. This had $17.9 million outstanding as of March, according to sources.
The $283 million first-lien loan due in September 2021 priced at 85 while the $105 million second-lien term loan due in September 2022 priced at 70. Guidance on the first-lien loan opened at 96 in April when banks brought back the deal and at 93 on the second-lien loan. The size of the loss the banks ended up taking on the deal was not disclosed, but a discount of 85 on the first-lien tranche and of 70 on the second-lien tranche add up to banks receiving $314.05 million from investors, which constitutes a gap of $73.95 million from the fully funded amount.
The discounts were necessary after the company’s Ebitda numbers declined precipitously from when the merger was announced in July 2014, sources said.
Oaktree Capital Management-backed Ileos agreed to merge its subsidiary Bioplan with Arcade Marketing, which was owned by Visant Corp, a company controlled by KKR and DLJ Merchant Banking. The deal gave Oaktree a 75 percent share and Visant a 25 percent share.
The lending banks brought a $375 million term loan B and a $145 million second-lien term loan to the market in August with an Ebitda number in the mid-$80 million range. After the financings failed to attract buyers at the offered terms, the banks decided to postpone the deal, as the loan market at that time was extremely volatile in sympathy with the high-yield bond and equity markets, leading to multiple deals being pulled.
The banks tried again in September, when the deal was slated to close, only to be informed that the company’s financial numbers were no longer up to date and the Ebitda number was much lower.
While the Ebitda number at that time was not available, investors were told in April that Ebitda was at $66 million, other sources said. This put first-lien net leverage at 4.3 times and total net leverage at 5.9 times. The material changes stemming from the Ebitda decrease forced the banks to pull the deal a second time, the banking source said.
As the loans were funded in September, when the acquisition closed, the spreads stayed unchanged. The first-lien coupon is LIB+475 with a 1 percent floor. The second-lien coupon is LIB+825 with a 1 percent floor.
Goldman Sachs, Visant and Ileos did not return calls for comment. Credit Suisse declined to comment. (Editing By Michelle Sierra and Lynn Adler)