Presidio is in the market with a high-yield bond backing Clayton Dubilier & Rice’s buyout of the IT services company, one of the few new-money trades to hit the market this year as junk-rated borrowers rush to raise funds.
The US$500m seven-year non-call three offering, which is expected to be rated B2/B, is part of a US$2.6bn financing package for the LBO.
Presidio has been a favorite among private equity firms that have bought and sold the company multiple times over the past few years.
CD&R announced last month it was acquiring a majority stake in Presidio from BC Partners, which is keeping a minority position after purchasing the company in a US$2.1bn take-private transaction in 2019. Presidio went public in 2017 when it was then controlled by Apollo.
This week's offering is a welcome addition to an LBO financing calendar, which has proven disappointing for bankers who had bet that Federal Reserve rate cuts would spark some life into this otherwise moribund corner of the debt markets.
That scenario, however, never emerged as higher-than-expected inflation data delayed any hopes of monetary easing.
Expected volumes of leveraged buyouts have failed to materialize because buyers and sellers continue to struggle to agree on valuations, a leverage finance banker said.
Meanwhile, uncertainties related to the overall economy and upcoming elections have also made dealmakers hesitant.
“It is a probably a combination of different factors, but we are seeing less and less than we had anticipated and it is probably slowing down as we are going further into the year, not accelerating,” the banker said.
Even so, poorer-than-expected employment data on Friday sparked hopes that the Fed will now have more room to cut rates later this year, encouraging Presidio, along with at least eight other high-yield borrowers, to announce deals on Monday.
Presidio is also marketing a US$2.103bn first-lien term loan B to back the acquisition. That loan is being talked at an OID of 99 with a SOFR spread of 375bp–400bp, according to LPC. There is also a 25bp step-down at five times first-lien net leverage and a 25bp step-down if the company completes an IPO.
The term loan B allows CD&R to prepay the debt, an option that is unavailable in the high-yield market, said the banker, explaining why the private equity firm may have opted for a relatively small size on the bond offering.
Presidio was last in the bond market on March 30 2022, just days after the Fed started to dramatically tighten monetary policy in response to rising inflation.
At the time, Presidio Holdings came with a small US$25m Caa1/CCC+ rated add-on to its 8.25% 2028s that priced at 101 to yield 8.467%. On Friday afternoon, that bond changed hands at a dollar price of 101.473 to yield 6.143%, according to MarketAxess data.
Citigroup is lead left on the bond. JP Morgan is the lead-left bookrunner and administrative agent on the loan.