NEW YORK, June 16 (Reuters) - Securus Technologies is in the midst of finalizing revisions to its US$1.3bn leveraged buyout debt package after investors pushed back on a first-out revolver included in the capital structure, according to sources.
While the negotiations are still fluid, lead underwriter Deutsche Bank has told some accounts to expect the revolver to remain as originally structured, rather than be made pari passu with the proposed US$870m term loan B, and an increase in the spread on the term loan to as much as 450bp over Libor, from initial guidance of 375bp-400bp over Libor, two of the sources said. The 1% floor and 99.5 original issue discount on the loan would not be changed.
Deustche plans to officially roll out the new terms on Monday, one of the sources said. Commitments were initially due June 15.
The financing currently consists of a US$150m five-year first-out revolver, the US$870m seven-year term loan B, and a US$280m eight-year second-lien term loan. The second-lien tranche, which is guided at 800bp-825bp over Libor with a 1% floor and a 99 offering price, was oversubscribed as of earlier this week. Several potential first-lien lenders committed conditionally upon a pari passu revolver, or alternatively, higher pricing.
The existing structure is particularly problematic for Collateralized Loan Obligations, which make up a large portion of the existing lender base, because the vehicles place capacity restrictions on junior-lien debt. Effectively, the first-out revolver turns the first-lien into a second-lien.
Securus is marketing the deal at 4.7 times first-lien leverage, including an anticipated US$20m draw on the revolver at close, and 6.0 times total leverage, based on pro forma adjusted Ebitda of US$191m for the trailing 12 months ending March 31, including US$10m of synergies. That degree of leverage has been deemed by some investors as too high, in light of ongoing regulatory risk.
New sponsor Platinum Equity is contributing US$487m in fresh equity, while management is rolling over about US$35m, for roughly 31% of capitalization.
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.
A Deutsche Bank spokesperson declined to comment. Platinum Equity did not respond to requests for comment. (Reporting by Andrew Berlin; Editing By Jon Methven)