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AT&T Nets $40B Bridge Loan Backing $85.4B Time Warner Buy

AT&T disclosed that it has obtained a $40 billion term loan credit agreement from J.P. Morgan and Bank of America Merrill Lynch in connection with its planned $85.4 billion acquisition of Time Warner.

Pricing on the bridge loan is tied to a ratings-based grid, at L+75–150. Based on AT&T’s BBB+/Baa1 rating, pricing would appear to open at L+112.5.

AT&T logoJ.P. Morgan and Bank of America acted as joint lead arrangers and lenders. J.P. Morgan is administrative agent.

The bridge loan is covered by a net debt leverage covenant set at 3.5x.

In addition to new debt, the acquisition will be funded with cash on AT&T’s balance sheet.

Bonds backing AT&T and Time Warner Inc. widened on Friday as participants anticipated the formal merger announcement. AT&T 4.75% bonds (BBB+/Baa1) due May 15, 2046, which date to issuance in April 2015 at T+215, changed hands 25–30 bps wider at G-Spreads in the low-to-mid 220 bps range, and continued trade in that area this morning, according to MarketAxess.

Time Warner 4.85% bonds (BBB/Baa2) due July 15, 2045—which were first printed in May 2015 at T+195, and reopened last November at T+200, or 5.06%—traded on Friday at G-Spreads in the low 200 bps area, or 20 bps wider on the day and month to month, and were indicated in that area again this morning, trade data show.

AT&T’s market capitalization was recently roughly $238 billion and its total enterprise value roughly $362 billion, including $7.3 billion of cash and $131 billion of total debt, according to S&P Global Market Intelligence. Time Warner had a $64.5 billion market cap and $86.5 billion total enterprise value, including $2.5 billion of cash and short-term investments and $24.5 billion of total debt.

While bond spreads widened, CDS indications went in different directions. AT&T five-year protection costs on Friday increased 7% to the 95-bps area, and continued up this morning to test 100 bps, while Time Warner costs ebbed 9% to just under 60 bps on Friday and continued a further 0.5 bps tighter this morning.

The acquisition is expected to close before year-end 2017. By the end of the first year after closing, AT&T expects net leverage to be in the 2.5x range.

AT&T (NYSE: T) on Oct. 22 announced that third-quarter 2016 net income totaled $3.3 billion, compared to $3 billion in the third quarter of 2015. — Richard Kellerhals/John Atkins

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Marketo’s $1.79B Take-Private Purchase Backed by Debt from Golub

Golub Capital punched upmarket to provide the debt financing behind the $1.79 billion take-private purchase of San Mateo-based digital-marketing company Marketo (NASDAQ:MKTO) by Vista Equity Partners.

The purchase closed today after shareholders approved the agreement on July 28, Marketo announced this morning.

Wilson Sonsini Goodrich & Rosati served as legal advisor to Marketo. Kirkland & Ellis LLP served as legal advisor to Vista. —Kelly Thompson

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KKR Capital Launches $300M Leveraged Loan Backing Epicor Buy

KKR Capital Markets has scheduled a lender call for today at noon EDT to launch a $300 million of incremental facilities for Epicor. The financing includes a $225 million non-fungible first-lien term loan alongside a $75 million second-lien term loan that has been preplaced, according to sources.

epicor logoAs reported, KKR is leaving Epicor’s existing loans in place as it acquires the software concern from Apax Partners. A $2.11 billion financing arranged last year by Jefferies, Macquarie, and Nomura included pre-cap language that would allow the loans to remain in place following the sale to a qualified sponsor.

The 2015 dividend recapitalization included a $1.4 billion covenant-lite first-lien term loan due 2022 (L+375, 1% LIBOR floor), a $100 million revolver due 2020, and $610 million of privately placed second-lien loans. That transaction leveraged Epicor at 5.1x first-lien and roughly 7.3x total.

Epicor is a global provider of business software for the manufacturing, distribution, retail, and services industries. — Staff reports

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Krispy Kreme Inks $500M Loan Backing JAB Buyout of Co.

Krispy Kreme Doughnuts yesterday disclosed that it has entered into a credit agreement providing a $500 million pro rata loan package backing JAB Beech’s roughly $1.35 billion acquisition of the company. Proceeds are also earmarked to refinance existing debt and for working capital and general corporate purposes.

The five-year loan package includes a $350 million, five-year A term loan and a $150 million revolver.

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Barclays, Rabobank, J.P. Morgan, and Credit Agricole arranged the transaction. Barclays is administrative agent.

Krispy Kreme and JAB also announced that the acquisition had closed. As a result, Krispy Kreme’s common stock will cease trading on the NYSE. Krispy Kreme will continue to be independently operated from Krispy Kreme’s current headquarters in Winston-Salem, N.C. — Richard Kellerhals

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Epiq Systems Eyes $1.3B of Debt for Buyout by OMERS, Harvest Partners

Bank of America Merrill Lynch, Goldman Sachs, Antares Capital, and Golub Capital have agreed to provide roughly $1.3 billion of debt financing to back the acquisition of Epiq Systems by OMERS Private Equity, the private equity arm of OMERS pension plan, and funds managed by Harvest Partners, a middle market private equity fund, according to an Epiq Systems statement.

Epiq SystemsEpiq Systems this morning announced that it had entered into an agreement to be acquired for $16.50 per share in cash, representing a total value of roughly $1 billion, including assumed debt. The acquisition is expected to close in the fourth quarter of 2016.

Upon completion of the acquisition, Epiq will become a privately held company and will be combined with DTI, a legal process outsourcing company majority-owned by OMERS and managed by OMERS Private Equity.

In April 2015, Epiq Systems obtained a $75 million fungible add-on to its B term loan due August 2020 (L+375, 0.75% LIBOR floor). As of March 31, there was roughly $366 million outstanding under the B term loan, $19 million outstanding under its $100 million revolver due 2018, and roughly $12 million outstanding under its capital leases.

Kansas City, Kan.–based Epiq is a global provider of integrated-technology solutions for the legal profession. Corporate issuer ratings are B+/B1. The company’s shares currently trade on the Nasdaq under the ticker EPIQ. — Richard Kellerhals

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Polyconcept Readies $435M Leveraged Loan Backing LBO by Charlesbank

Goldman Sachs, RBC Capital Markets, and Natixis are launching a with a lender meeting on Thursday, July 28, at 10 a.m. EDT their $435 million term loan B backing Charlesbank Capital Partners’ purchase of Polyconcept, a value-added supplier of promotional products, according to sources.
polyconcept logoThe financing package includes an $88 million ABL revolver and a $435 million seven-year first-lien term loan, sources said. A second-lien term loan will be privately placed.

Polyconcept last tapped the loan market in 2013 with a first- and second-lien loan package to refinance existing debt. The financing package included a cross-border first-lien term loan split between a $255 million U.S. dollar tranche and a €46 million euro piece, as well as a $125 million privately placed second-lien term loan.

Polyconcept, headquartered in New Kensington, Pa., develops and distributes promotional, lifestyle, and gift products. The company is currently owned by Investcorp. — Chris Donnelly

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Apollo Lines up Banks for $1.6B Outerwall LBO Financing

Bank of America Merrill Lynch, Jefferies Finance, Barclays, and Credit Suisse are providing Apollo Global Management with debt financing to back the $1.6 billion buyout of Outerwall Inc.

outerwall logoBellevue, Wash.-based Outerwall announced the $52-per-share cash buyout this morning. The purchase price is a 51% premium over the closing stock pricing on March 14, before Outerwall’s board announced plans to explore a possible sale.

The board has unanimously approved the Apollo offer. The purchase is expected to close in the third quarter, pending shareholder approval.

Outerwall said it will release second quarter earnings Thursday, but it does not plan to hold a conference call to discuss results.

In April, the owner of Redbox and Coinstar kiosks reported first-quarter earnings that beat expectations.

Earlier this year agencies lowered the company’s credit ratings on deteriorating performance in the physical rental business. S&P Global Ratings lowered Outerwall’s corporate credit rating in February by two notches to BB–, from BB+. Similarly, Moody’s downgraded Outerwall to Ba2, from Ba3.

Separately, the company this morning declared a quarterly dividend of $0.60 per share of common stock to be paid on Sept. 6. — Kelly Thompson

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In Shadow of Brexit, Burgeoning European LBO Loan Market Proceeds with Caution

european lbo loan volume

U.K. buyouts accounted for only €2.33 billion of LBO volume across the leveraged loan market in 2016’s first half, versus €14.4 billion of supply for non-U.K. buyouts, according to LCD, an offering of S&P Global Market Intelligence.

Note the €14.4 billion is the largest first-half volume for non-U.K. LBOs since the turn of the decade, indicating that sponsors were either keen to raise financing ahead of the June 23 U.K. Brexit vote, or were simply not perturbed by it.

Sponsors expect LBO activity to continue into the second half of 2016, although the U.K.’s decision to leave the European Union has left market participants in a brave new world of financing, and the biggest obstacle to a pick-up in LBOs will be new valuations. – Nina Flitman

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UFC Sets Leveraged Loan, High Yield Bond Backing Private Equity Buy of Co.

Financing for the $4 billion purchase of professional mixed martial arts organization UFC by WME IMG, Silver Lake Partners, KKR, and MSD Capital will include a $1.3 billion, seven-year covenant-lite term loan B and $500 million of unsecured notes, sources said. As expected, UFC will be financed on a stand-alone basis and will not result in a refinancing of talent agency WME IMG’s debt, sources said.

UFC logoGoldman Sachs will be left lead on the loan deal and is expected to commence pre-marketing of the transaction shortly, while Deutsche Bank will be left lead on the bond deal, sources said. As noted earlier, the financing package has been underwritten by Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, and KKR Capital Markets.

WME IMG will also serve as UFC’s operating partner. Silver Lake Partners and KKR will join WME IMG as new strategic investors, along with MSD Capital, L.P. and MSD Partners, L.P., which will provide preferred equity financing, sources said.

UFC produces more than 40 live events annually and is the largest Pay-Per-View event provider in the world, broadcast in over 156 countries and territories, to nearly 1.1 billion television households worldwide, in 29 different languages. UFC continues to capitalize on digital distribution platforms via its wholly owned subscription over-the-top service, FIGHT PASS, delivering exclusive live events, thousands of fights on demand, and original content to viewers around the globe.

UFC parent Zuffa in 2014 repriced its then $475 million TLB due 2020 to L+300, with a 0.75% LIBOR floor. — Chris Donnelly

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Golub Capital backs Roark Merger of PetValue/Pet Supermarket with Hefty Unitranche Loan

Golub Capital was sole bookrunner and joint lead arranger on a $605 million unitranche loan that financed the merger of Pet Valu and Pet Supermarket, which are both portfolio companies of Roark Capital. Additional details of the financing were not available.

Golub is administrative agent on the loan. It is largest agented loan in the firm’s history.

The transaction combines longtime Roark portfolio company Pet Valu, acquired in 2009, with Pet Supermarket, which the private equity firm bought last year. Golub also provided debt financing for the latter acquisition. The combined business, called Pet Retail Brands, will have 930 stores in the U.S. and Canada and will generate around $1 billion in system-wide sales, according to the sponsor. Pet Valu and Pet Supermarket will continue to operate as independent brands.

Pet Retail Brands is a specialty retailer of premium pet food, supplies and services. The company will remain headquartered in Markham, Ontario, while Pet Supermarket operations will continue to be based in Sunrise, Fla. — Jon Hemingway

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