Spreading the word
Gems Education succeeded in introducing a high-yield credit to a variety of investor bases and walked away with the largest Single B corporate bond issue from a Gulf borrower in over 10 years.
The Dubai-based education services provider sold a US$900m seven-year non-call three bond. The deal was just one leg of a US$1.85bn debt refinancing, which needed to reach a number of pockets of liquidity given its overall size.
The refinancing was run concurrently with the acquisition of a 30.5% stake by a CVC-led consortium. CVC wanted to see an institutional capital structure in place at the company.
But with each extension into a new investor base came a fresh challenge.
Although high-yield buyers know the education sector through names like Nord Anglia Education and Cognita Schools, they were far less familiar with the UAE, where Gems' business is based.
Emerging markets accounts, on the other hand, were not used to a non-commodity high-yield issuer from the Gulf, particularly one as highly levered as Gems.
Gems (B2/B/B), which runs private schools from kindergarten to 12th grade and caters mainly to expat families, posted net leverage of around five times in May based on the previous 12 months adjusted Ebitda.
"The question is, how do you tap those two audiences?" said Neil Slee, a managing director at Goldman Sachs, which was sole physical bookrunner and a global coordinator alongside Credit Suisse.
"Working off one desk would have boxed the deal, and we didn't want to look at purely one side of it," said Slee.
Goldman offered support with a hard underwrite for the trade, as Gems presented three financing options for investors to grapple with: a euro bond, a US dollar bond, and a term loan B.
Gems does not have a natural need for euros, but the inclusion of that tranche was intended to take the pressure off the US dollar leg and create price tension across the structure.
The issuer initially targeted a US$800m-equivalent bond sale comprising a US$500m note and a US$300m-equivalent tranche in euros. Both had the same seven-year non-call three tenor.
But despite good traction on the euro note, the US dollar bond gained such interest that Gems was able to drop the euros and concentrate all of its efforts on the greenback.
Gems was even able to increase the size of the bond side of the overall transaction, downsizing the TLB by US$100m and taking the US dollar bond to US$900m.
The bond came 37.5bp inside initial price thoughts to land at 7.125%.
The financing package was completed by the US$750m TLB sold to institutional accounts and a US$200m revolving credit facility.
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