Private equity firm Platinum Equity’s US$2.1bn offer to acquire blood glucose monitoring systems maker LifeScan, Inc from US health care products company Johnson & Johnson is backed by US$1.875bn of loans, according to two sources familiar with the matter.
J&J has been evaluating strategic options for the troubled unit, as well as its other diabetes care businesses, which include insulin pumps maker Animas Corp and wearable insulin pumps maker Calibra Medical Inc, since January 2017 amid falling sales. The company last October announced it would close down Animas after failing to find a buyer.
Bank of America Merrill Lynch is providing the entire debt commitment to Platinum Equity initially but will carve out a portion to other banks, the sources said. The carveout could be as high as 60%, one of the sources said.
The debt will be split between a US$1.4bn secured term loan with a first priority claim and a US$350m secured term loan with a second priority claim, the sources said.
The financing includes a US$125m revolving credit facility that will be undrawn at close, the sources added.
J&J, BAML and Platinum did not respond to requests for comment.
LifeScan’s performance has been weighed down in recent years due to pricing pressure stemming from competition, the sources said. The unit has also faced challenges securing rights to newer technology, a third source said.
Due to declining Ebitda, or earnings before interest, taxes, depreciation and amortization, the debt underwriting process centered around an absolute debt amount rather than the more typical factor in leveraged lending, a debt-to-Ebitda multiple, sources said.
The Ebitda figure that will be used to market the deal has not been solidified. The metric ranges between US$450m and US$600m depending on whether it’s calculated on a last 12-months’, full-year 2017/2018, or trough basis, one of the sources said.
Leverage would be 3.9 times and 2.9 times at the low and high end of that range, respectively.
The timing of the syndication of the debt is also fluid, as the closing process is likely to be protracted due to regulatory concerns and the new owner may seek to avoid paying ticking fees, the sources said.
Assuming the offer is accepted, closing is expected by year-end, according to a J&J’s press release.
Platinum on March 16 announced it had submitted a binding offer to acquire LifeScan for approximately US$2.1bn. It has given J&J until June 15 to accept the offer, to allow for consultations with work councils that represent employees. LifeScan is headquartered in Chesterbrook, Pennsylvania and Zug, Switzerland.