LONDON, Feb 29 (IFR) – Solera plans to privately place a roughly 410m unsecured bond tranche, according to a source close to the deal, in order to get its US$3.9bn LBO debt package over the line on Monday.
The insurance software business had originally targeted a US$2bn-equivalent unsecured bond deal, but on Friday upsized its secured loan deal by US$300m to US$2.2bn to reduce the amount of bonds that it needed to sell.
Solera set revised price talk on the public dollar bond tranche on Friday, with a US$1.28bn eight-year non-call three talked at a 94-95 original issue discount with a 10.50% coupon. This will equate to an 11.47%-11.67% yield.
The source said the remaining US$450m needed will be raised in euros, through a roughly 410m bond issue privately placed with a “handful of accounts”. This deal will have a 10% coupon and a similar OID to the dollar tranche.
Solera’s lead underwriter Goldman Sachs has made increasing use of the private placement market to shift LBO paper in recent weeks, placing much of the debt with Goldman Sachs Merchant Banking Division‘s mezzanine fund.
Goldman’s mezz fund bought the junior debt of both the SolarWind LBO in the US and the TeamSystem LBO in Europe in recent weeks.
The deal’s euro tranche was publicly marketed at a yield 25bp area inside the dollar tranche last week, which was originally talked at a 10.75%-11% yield.
Leads have also made significant document changes on both the bond and loan, to assuage investor concerns around loose covenants. On the bond, this includes changes restricting the ease with which the company can pay dividends and a cap on future add-backs to Ebitda.
“I’m sure very few of those were flex items, which means you have to go cap in hand to the sponsor and say: ‘Please can we do this, as a hung deal would be a worse outcome?’,” said a banker away from the deal.
He added that the bond’s final pricing was “not a terrible outcome”, given that many investors had pushed for yields north of 12%.
A credit analyst at a global high-yield fund said it would not participate in the deal despite the higher yields on offer, primarily due to concerns around thin free cashflow.
“The capital structure is too risky for a software business given recent developments in the market,” the analyst said. “The covenant changes are definitely positive though. In this market, lenders have a lot more power.” (Reporting by Robert Smith; editing by Philip Wright, Alex Chambers)