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In Latest Dividend Deal for Leveraged Loan Market, Cengage Eyes $1.59B Credit Backing Recap

A Morgan Stanley–led arranger group this morning detailed the structure of a proposed dividend recapitalization financing for Cengage Learning.

The privately held higher education publisher is seeking to put in place a $1.59 billion B term loan, which launches via a bank meeting at 2 p.m. EDT, as well as $740 million of senior unsecured debt, proceeds of which would be used to refinance the approximately $2 billion of existing secured debt and fund a shareholder dividend, sources said. Additional details on the term loan will emerge at this afternoon’s bank meeting.

Morgan Stanley, Credit Suisse,  BMO Capital Markets, Citigroup,, Goldman Sachs, Wells Fargo, Deutsche Bank, and KKR Capital Markets are arranging the loan.

B/B2 Cengage currently has in place a covenant-lite term loan due 2020 that is priced at L+600, with a 1% LIBOR floor, and had been quoted at 100/100.5 prior to Friday’s announcement of a lender meeting, sources said.

The originally $1.75 billion institutional loan was placed in early 2014 to back the company’s exit from Chapter 11, which handed its pre-petition first-lien lenders 100% of the equity in the reorganized company. The loan was upsized by $300 million in December 2014, proceeds of which were used to fund a shareholder dividend. — Kerry Kantin

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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Another Dividend: CHG Healthcare Readies $990M Leveraged Loan Backing Recap

An arranger group led by Goldman Sachs has scheduled a lender meeting for CHG Healthcare Services on Thursday, May 19, at 10 a.m. EDT.

The issuer is raising a $990 million term loan B, while $300 million of second-lien notes have been privately placed, according to sources. Proceeds back a dividend recapitalization. Additional arrangers are expected to be named shortly.

The healthcare-staffing provider is controlled by Leonard Green & Partners and Ares Management.

CHG roughly a year ago wrapped a $225 million add-on to its covenant-lite first-lien term loan to repay second-lien term debt and fund a small dividend, sources noted. The add-on took first-lien outstandings to roughly $800 million.

The CHG deal is the latest in a relative spurt of recap/dividend loans lately. — Chris Donnelly
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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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As Investor Sentiment Picks Up, Refinancings/Recap Loans Re-Emerge

leveraged loan refi recap issuance

More evidence that tone is improving in the U.S. leveraged loan market: opportunistic refinancing – including credits backing dividends to private equity sponsors – began to pick up in April (and there’s been at least three recap deals in May, as well).

This chart was taken from LCD’s monthly U.S. Leveraged Loan Technicals analysis, by Kerry Kantin.

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LCD’s High Yield Market Primer/Almanac Updated with 3Q Charts

LCD’s online High Yield Bond Market Primer has been updated to include third-quarter 2015 and historical volume and trend charts.

The Primer can be found at HighYieldBond.com, LCD’s free website promoting the asset class. HighYieldBond.com features select stories from LCD news, weekly trends, stats, and analysis, along with recent job postings.

We’ll update the U.S. Primer charts regularly, and add more as the market dictates (new this time around: an historical look at Fallen Angels, courtesy S&P).

Charts included with this release of the Primer:

  • US High Yield Issuance – Historical
  • 2015 High Yield Issuance, by Purpose
  • High Yield LBO Issuance
  • Fallen Angels – Historical
  • Cash Flows to High Yield Funds, ETFs
  • PIK Toggle Issuance (or lack thereof)
  • Yield to Maturity: Historical, Recent

LCD’s Loan Market Primer and High Yield Bond Market Primer are some of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, they are widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.

Check them out, and please share them with anyone wanting an excellent round-up of or introduction to the leveraged finance market.

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American Seafoods recap leveraged loan a big catch for BDC Ares Capital

Ares Capital earlier this month closed an $800 million loan financing for American Seafoods Group (ASG) in what is the latest example of a non-regulated arranger stepping in to capture business typically in the realm of large banks.

As part of a recapitalization of ASG, the Nasdaq-listed BDC recently closed a $540 million first-lien term loan due August 2021 (L+500, 1% LIBOR floor) and a $200 million second-lien term loan due February 2022 (L+900, 1% floor). A $60 million revolving credit rounded out the financing.

One of the main themes in the loan market this year is the effort by non-traditional arrangers to capture business that is outside of the parameters of the leveraged lending guidelines. While BDCs are increasingly leading larger deals, a transaction of this size for a seasoned borrower of the broadly syndicated loan and high-yield markets is a unique event.

The company’s existing loans dated to a 2011 refinancing in which ASG placed a $281.5 million B term loan due 2018 (L+300, 1.25% floor) via Bank of America Merrill Lynch, Wells Fargo and DnB NOR. It came alongside a $100 million TLA and an $85 million, five-year revolving credit. The company’s last foray into the high-yield market was in 2010 with $275 million of 10.75% subordinated notes due 2016 and $125 million of 15% senior holdco PIK notes due 2017, also via leads Bank of America Merrill Lynch and Wells Fargo. The RC and TLA had springing maturities to November 2015 if the senior subordinated notes remained outstanding.

For ASG, this new deal is a deleveraging event. In addition to refinancing the existing bank debt, the company executed a distressed exchange of its PIK notes, offering cash or equity, and received an equity infusion from private equity firm Bregal Partners and an industry group led by family-owned Pacific Seafoods. According to S&P, the company cut its overall debt burden from $911 million as of June 30.

The deal was complicated by several moving parts and a short timeline, playing to the strength of a BDC that can tailor its investment. It also helps the syndication process when the lead arranger is willing to hold a large piece of the deal, sources said. In this case it might represent as much as 25% of the total commitment. Ares is understood to have taken down $100-200 million across the first- and second-lien tranches.

Still, there were between 20-30 lenders in the group. They included similar alternative-asset managers alongside some foreign banks, sources note. Some existing investors rolled into the new deal.

Tackling a transaction of this size might not be a normal event for Ares Capital but the lender will seek similar opportunities to underwrite and syndicate larger transactions, particularly now that its joint venture with GE Capital was discontinued (Senior Secured Loan Program). “It’s not difficult for us with our capital base to underwrite deals of up to $500 million,” Ares Capital’s CEO Kipp deVeer told LCD, “Strategically, to do one or two of these a quarter would be fantastic.”

Following completion of the loan transaction agencies assigned ratings of B+/B2 to American Seafoods Group’s first-lien facility, with a recovery rating of 1 from S&P. The second-lien came in at CCC+/Caa2, with a recovery rating of 5. Corporate ratings are B-/B3, with stable outlooks from both. – Jon Hemingway

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Hostess recap leveraged loans enter trading mart atop new-issue price

Investors this afternoon received allocations of the first- and second-lien dividend recapitalization financing for Hostess Brands. The $925 million, seven-year first-lien term loan (L+350, 1% LIBOR floor) broke to a 100.125/100.625 market, versus issuance at 99.75, while the $300 million, eight-year second-lien term loan (L+750, 1% floor) opened bid at 100.25, from issuance at 99.5, according to sources. Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura arranged the covenant-lite loan, which cleared tight to original talk and with a shift of $100 million from the second-lien to the first-lien. Of note, the leads also added pre-cap language to the heavily oversubscribed deal, which will be used to refinance debt and to fund an approximately $905 million dividend. The pre-cap language allows for portability within the 18 months after the deal closes provided the M&A transaction meets the following criteria: pro forma net leverage is not above 6.3x, the deal has a minimum enterprise value of $2 billion, and the deal will be financed with a minimum of 30% equity, sources noted. Hostess is controlled by Apollo Global Management and Dean Metropoulos. Terms:

Borrower Hostess Brands
Issue $925 million first-lien term loan
UoP Dividend recapitalization
Spread L+350
LIBOR floor 1.00%
Price 99.75
Tenor seven years
YTM 4.62%
Call protection six months 101 soft call
Corporate ratings B/B2
Facility ratings B+/B1
S&P recovery rating 2H
Financial covenants none
Leverage 6.3x net total
Bookrunners CS, UBS, DB, MS, RBC, Nom
Admin agent CS
Sponsor Apollo, Dean Metropoulos
Price talk L+350-375/1%/99.5
Notes Upsized by $100 million; with a step to L+325 @ 4x senior secured leverage
Borrower Hostess Brands
Issue $300 million second-lien term loan
UoP Dividend recapitalization
Spread L+750
LIBOR floor 1.00%
Price 99.5
Tenor eight years
YTM 8.87%
Call protection 102, 101 hard call
Corporate ratings B/B2
Facility ratings CCC+/Caa1
S&P recovery rating 6
Financial covenants none
Leverage 6.3x net total
Bookrunners CS, UBS, DB, MS, RBC, Nom
Admin agent CS
Price talk L+750-775/1%/99
Sponsor Apollo, Dean Metropoulos
Notes Scaled back by $100 million
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Hostess tightens pricing on $1.25B leveraged loan backing recap/dividend to apollo

A Credit Suisse-led arranger group is seeking commitments by 5 p.m. EDT today on the first- and second-lien dividend recapitalization financing for Hostess Brands after offering issuer-friendly changes to the deal, including tightening pricing and adding pre-cap language to the transaction, according to sources.

The spread on the first-lien term loan firmed at L+350, the tight end of L+350-375 guidance, and the offer price was tightened to 99.75, from 99.5. The 1% LIBOR floor is unchanged.

The second-lien also firmed at the tight end of the initial L+750-750 range, while the arrangers tightened the OID to 99.5, from 99. The 1% floor is unchanged.

As revised, the first-lien offers a yield to maturity of about 4.62%, while the second-lien would yield about 8.87%, which compares with 4.67-4.93% and 8.96-9.23% at the original guidance, respectively.

Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura are arranging the deal.

In addition, the leads shifted $100 million to the first-lien term loan from the second-lien. As revised, the deal includes a $100 million revolver; a $925 million, seven-year first-lien term loan; and a $300 million, eight-year second-lien term loan.

The issuer is rated B/B2. Prior to the shift in funds, the first-lien drew B+/B1 ratings and the second-lien drew CCC+/Caa1 ratings, with 2H and 6 recovery ratings from S&P, respectively.

The term loans will be covenant-lite. As before, the first-lien term loan is set to include six months of 101 soft call protection, and the second-lien loan will be callable at 102 and 101 in years one and two, respectively.

The recap loan follows news that the issuer – which is controlled by Apollo Global Management and Dean Metropoulos – took the company off the auction block and was instead preparing to pursue an initial public offering. The dividend is roughly $905 million. – Kerry Kantin/Chris Donnelly 

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AlixPartners tightens price talk on $1.1B recap term loan

Deutsche Bank, Bank of America Merrill Lynch, Goldman Sachs, Jefferies, and UBS have tightened pricing on their $1.1 billion B term loan for AlixPartners to L+350, with a 1% LIBOR floor, offered at 99.75, sources said. The loan was offered earlier at L+375, with a 1% floor, at 99.5.

Recommitments are due today at 3 p.m. EDT.

Proceeds will be used to refinance the issuer’s first- and second-lien debt, and to fund a $125 million dividend to shareholders, according to sources. The seven-year TLB will include six months of 101 soft call protection and would yield roughly 4.62% to maturity, down from 4.93% at initial guidance.

Loan and issuer ratings are B+/B2, with a 3L recovery rating.

The CVC Capital Partners-controlled global business-advisory firm repriced its covenant-lite first-lien term debt roughly a year ago. The $80 million, B-1 term loan due June 2017 was repriced to L+275, while the $672 million B-2 term loan due July 2020 was repriced to L+300, with a 1% LIBOR floor.

A 2013 recap deal also included a $225 million, eight-year second-lien term loan, priced at L+800, with a 1% floor. The loan is now callable at par, sources noted. CVC in 2012 purchased a majority stake in AlixPartners, whose managing directors also maintained a considerable equity stake in the provider of business-advisory and consulting services. – Chris Donnelly

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PPD sets $2.575B leveraged loan to refinance debt, fund dividend

Credit Suisse has set a lender meeting on Friday, July 24, at 10 a.m. EDT to launch syndication of a $2.575 billion first-lien covenant-lite term loan for Pharmaceutical Product Development, sources said.

Proceeds will be used to refinance existing debt and to fund a shareholder dividend.

The seven-year loan is talked at L+350, with a 1% LIBOR floor, and is offered at 99.5. The loan includes six months of 101 soft call protection and would yield roughly 4.67%  to maturity.

The issuer will also put in place a $300 million, five-year revolving credit.

PPD in April placed a $150 million add-on to its $1.45 billion term loan. The capital structure also includes $500 million of 9.5% senior notes and a $525 million issue of holdco PIK toggle notes that funded a 2012 dividend.

PPD, which is controlled by the Carlyle Group and Hellman & Friedman, is a global contract-research organization that provides drug-discovery, development, and lifecycle-management services. – Chris Donnelly

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Hostess readies $1.325B leveraged loan backing recap, dividend to Apollo

Credit Suisse, Deutsche Bank, UBS, Morgan Stanley, RBC Capital Markets, and Nomura have set a lender meeting for Thursday, July 16, at 2 p.m. EDT to launch a $1.325 billion, first- and second-lien dividend recapitalization for Hostess Brands, sources said.

The deal will include a $100 million revolver, an $825 million seven-year first-lien term loan, and a $400 million eight-year second-lien term loan. The term loans will be covenant-lite and will include a 1% LIBOR floor. The first-lien term loan is set to include six months of 101 soft call protection, and the second-lien loan will be callable at 102 and 101 in years one and two, respectively.

Commitments will be due at 5 p.m. EDT on Thursday, July 30.

The recap loan follow news that the issuer, which is controlled by Apollo Global Management and Dean Metropoulos, took the company off the auction block and was instead preparing to pursue an initial public offering.

The 2013 LBO included a $500 million seven-year covenant-lite term loan, priced at L+550, with a 1.25% LIBOR floor, and a $60 million, five-year revolver that was arranged by Credit Suisse and UBS.

At the time, the snacks business was shuttered. The buyers restarted operations, and the relaunched business outperformed plan to the point that lenders were asked in 2014 to allow Hostess to pay a $175 million dividend from cash on hand. The lender group countered with an offer of bigger fees and a smaller payout, which the owners passed on, sources said. At that point, the restarted business was already generating $145 million of run-rate EBITDA and $100 million of run-rate free cash flow. At this point, EBITDA has expanded to nearly $200 million and the term loan has been reduced to about $345 million.

The existing term loan will be repaid at 102. – Chris Donnelly