Well-connected
The US$315m covenant-lite leveraged buyout loan supporting private equity firm Hellman & Friedman’s acquisition of SnapAV was a tricky deal and still scored an execution that put it among the most aggressive and competitive middle-market loans of 2017.
UBS was lead-left arranger, with SunTrust on the right.
The company, a supplier of audio-visual products in the rapidly growing connected home sector, has US$50.1m in Ebitda, putting it squarely in the middle market, but at the lower threshold for covenant-lite loans.
“It was a small deal with all kinds of headwinds,” said Francisco Pinto-Leite, global co-head of leveraged finance at UBS. Chief among those challenges was the cyclical nature of the business.
The company may be small, but it is solidly profitable, has a growing revenue base and good liquidity, said Moody’s, which assigned the company B2 corporate family and facility ratings.
Syndication of the deal hinged on “peeling back the onion”, said Pinto-Leite. Investors really needed to understand the credit. “It took a lot of explaining.”
In anticipation of this education process, UBS pursued its characteristic hands-on, high-touch syndication approach, organising approximately 25 benchmark accounts to have one-on-one sessions just two days after signing the deal in order to maximise investor focus on the niche end-market in which SnapAV operates.
“It took a lot of heavy lifting,” said Brendan Dillon, global co-head of leveraged finance at UBS.
The effort paid off. The order book was oversubscribed and well-diversified – a mix of middle-market buyers and broadly syndicated loan investors, including CLOs and mutual funds.
The company lined up an all-senior financing split between a US$50m revolving credit and a US$265m first-lien term loan and tightened pricing. The loan was priced at 525bp over Libor and sold at a 99.5 original issue discount versus guidance of the 550bp over Libor spread and 99 discount offered at launch.
The Term Loan B is also the smallest covenant-lite LBO loan of 2017 to be priced with greater than five times first-lien leverage, and it was executed inside of price talk, said Dillon.
“The covenant-lite here was remarkable,” said Pinto-Leite. That is probably the biggest accomplishment, he added.
Hellman & Friedman acquired SnapAV for a total purchase price of US$635m with an equity contribution of US$393m.
To see the digital version of this review, please click here.
To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.
