NEW YORK, June 13 (Reuters) - Nearly a year to the day after banks finally sold the loans backing Veritas Software’s buyout at a discount of 85 cents on the dollar, the issuer is back in market with an effort to lower the interest rate on the debt.
The repricing shows how much the loan market has changed since banks originally pulled a US$5.6bn loan package backing the buyout in November 2015 amid turbulent market conditions stemming from sinking oil prices and broad macroeconomic concerns.
“It is a terrific reminder of how quickly the new issue market changes,” said a senior banker. “The original new issue timing could not have been worse.”
The timing now could not be better, said bankers, thanks to huge demand from investors anxious to grab yield and protect against rising interest rates.
Software provider Veritas is asking lenders to cut pricing by approximately 100bp on this debt, which was “seemingly left for dead a short time ago,” according to an investor.
That should still provide enough yield to entice existing investors to hold onto the paper and lure new investors to replace any lenders who opt to drop out, though that seems unlikely.
One Collateralized Loan Obligation investor said that his firm is holding onto any B2-rated loans that are repricing at 300bp or higher. The Veritas loans are rated B2/B+, with the company rated B3/B.
The issuer is looking to reprice a US$1.948bn term loan B1 and a €900m term loan B1 between 450bp and 475bp over their respective benchmarks. The loans priced at 562.5bp over the benchmarks after banks funded the loans backing the buyout by The Carlyle Group in January 2016. The loans were finally syndicated in June 2016.
The debt has been trading above par for much of the year as the company’s financial numbers have improved. The company’s Ebitda stood at US$740m as of the fiscal year end of March 13, 2017, a source said.
This number is lower than the US$760m of Ebitda reported when the deal was syndicated last year, but is higher than it was in September 2016 when business bottomed out. Secured leverage is being marketed at 4.5 times Ebitda with total leverage at 5.6 times, the source said.
Lenders said they expect the repricing to get done, but the Ebitda number still means there are some question marks at the company, according to a source familiar with the deal. The source noted that with sales down among software, the company has been selling hardware to offset the revenue losses, which is a commoditized business.
Bank of America Merrill Lynch, Morgan Stanley, UBS and Jefferies are leading the repricing and were all involved in underwriting the initial deal. Commitments are due June 15.
Veritas is not the only company to return to the market after seeing a deal struggle. In March, web conferencing provider Premiere Global Services tacked on US$115m to its first-lien loan and US$50m to its second-lien loan to back a dividend and refinancing effort.
The first-lien add-on was sold at a discount of 99 cents on the dollar, while the second-lien debt priced at a discount of 98 cents on the dollar. This is in line with other deals of this nature, but banks sold the original first-lien loan at a discount of 90 cents in May 2016.
“It really is an issuers’ market, and you’re going to see every company who can bring deals,” said another banker.
Additional reporting by Andrew Berlin Reporting by Jonathan Schwarzberg; Editing By Chris Mangham and Jon Methven