A Citigroup-led arranger group this morning offered revisions to the $2.5 billion institutional loan backing CVC Capital Partners and Canada Pension Plan Investment Board’s acquisition of Petco Animal Supplies, including sweetening pricing and carving out a B-1 tranche with a higher spread but no LIBOR floor.
The arrangers boosted pricing on the seven-year term loan to L+475, with a 1% LIBOR floor and a 98 offer price, which compares with original guidance of L+450, with a 1% floor and a 98.5–99 OID, sources said. The B-1 carve-out, which will be sized at a minimum of $500 million, is talked at L+500, with no floor, also offered at 98.
At the proposed guidance, the TLB offers a yield to maturity of about 6.26%, which compares with 5.8–5.9% at the original guidance. The B-1 tranche would yield 6.12%. Note LCD’s yield calculation does not take into account the forward curve; three-month LIBOR stands at 62 bps this morning.
Commitments are due by 5 p.m. EST today, with allocations to follow tomorrow.
The arrangers sweetened other terms of the covenant-lite transaction, including extending the 101 soft call protection to 12 months, from six months initially.
Also, the free-and-clear component of the incremental facility has been scaled back to $300 million, from $500 million. Unlimited amounts are permissible up to 4.5x first-lien net leverage for pari passu debt and up to closing net leverage for junior or unsecured debt. Lenders are offered 50 bps of MFN protection, which sources note will encompass the issuance of secured notes.
The excess-cash-flow sweep opens at 50%, but the step-downs to 25% and 0% were tightened by a half-turn, to 3.5x and 3x net senior secured leverage, respectively.
With respect to the definition of EBITDA, pro forma cost savings are now capped at 20%.
As reported, Citigroup, Barclays, RBC Capital Markets, Credit Suisse, Nomura, and Macquarie have committed to provide the financing. The acquisition, which was announced in November, is expected to close in early 2016. CVC and CPPIB are acquiring the business from an owner group led by TPG and Leonard Green & Partners. Citi will be administrative agent.
The deal drew B/B2 corporate and B/B1 facility ratings, with a 3L recovery rating from S&P. The loan will include six months of 101 soft call protection.
Financing for the transaction also includes a $500 million, five-year asset-based revolver, $750 million of unsecured notes which have been taken by Goldman Sachs, along with $1.45 billion of equity, sources said. Leverage is marketed as 4.8x secured and 6.1x total.
As noted earlier, pricing on the ABL revolver has been outlined as L+125–175. Alongside this morning’s changes to the institutional loan, the accordion for the asset-based revolver was reduced to $100 million, from $250 million.
Petco last approached the loan market in early 2013 with a repricing of its then $1.2 billion covenant-lite B term loan due November 2017 to L+300, with a 1% LIBOR floor. There was about $1.17 billion outstanding on the loan as of Aug. 1, SEC filings show.
Based in San Diego, Petco is a specialty retailer of premium pet food, supplies, and services. The company operates more than 1,400 locations across the U.S., Mexico, and Puerto Rico, along with one of the leading e-commerce platforms in the pet industry. — Kerry Kantin/Chris Donnelly
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