Arrangers J.P. Morgan, Credit Suisse, ING, Natixis, Rabobank, and Goldman Sachs earlier today launched their first-lien financing backing the merger of Clayton Dubilier & Rice–controlled TruGreen with Scotts Miracle-Gro Co.’s Scotts LawnService business, setting price talk on the term loan of L+575, with a 1% LIBOR floor, offered at 98-98.5, sources said.
The financing includes a $560 million B term loan and a $146 million revolving credit. A $200 million second-lien term loan has been placed privately and carries a 12% coupon, sources said. The first-lien term loan includes six months of 101 soft call protection and would yield roughly 7.22–7.32% to maturity.
The RC will be governed by a springing maximum first-lien test of 5.25x that will step down to 5x for the quarter ended Dec. 31, 2016, and will become effective when revolver utilization is 30%, according to Standard & Poor’s.
According to published reports, Scotts Miracle-Gro would receive $200 million in cash as it adds the Scotts LawnService business to the joint venture, taking a 30% stake. The combined company would operate under the TruGreen name, sources said.
Commitments are due on April 8.
TruGreen was spun off from CD&R-owned ServiceMaster in early 2014, using a restricted-payments basket in ServiceMaster’s credit agreement that, in effect, allowed CD&R to take the asset as a dividend. At the time, TruGreen had been underperforming and was seen as a potential stumbling block to ServiceMaster’s planned initial public offering.
A thorough process—including a solvency opinion and capital surplus analysis—showed that a spin-off was in the company’s best interests. The company’s capital surplus was adequate to make the planned distribution, and leverage would stay at 7.6x after a spin-off, the company said at the time. An analysis for the board valued TruGreen as a dividend at $399 million, the high end of a $352–402 million valuation range of a financial advisor, and within a $484 million term loan restricted payment threshold. The restricted-payment threshold for the distribution under indentures for 7% and 8% notes is $549 million.
Now, TruGreen is valued at $815 million in the transaction as CD&R sells the company out of one of its funds and reinvests into a newer fund, according to sources. TruGreen is rated B/B2. The first-lien loan is rated B/B1, with a 3H recovery rating. —Chris Donnelly
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