The bond portion of the deal accounts for around 40% of the total amount being raised. Not coincidentally, around 40% of Hub’s existing term loan investors are also CLOs that are unable to participate because they are either outside of their reinvestment periods or have other structural limitations, according to one buysider.

“It’s a brilliant move on their part,” the source, a CLO manager said. “If they tried to raise $6bn in all new debt, they wouldn’t be able to get it done, but with this structure, there are enough pockets to absorb the CLOs who can't participate.”

Refinancing a cap structure held by reinvestment-hampered CLOs is not necessarily a straightforward process, since those investors are restricted on the loans they can buy and sell. Another option is issuing shorter-dated paper to appeal to those buyers, which is a growing trend that we covered here.

While price talk on the bond portion has not been released, the loan is being talked at SOFR+425bps (with a 25bps step-down in the event of an IPO), a 75bps floor and a 98-98.5 OID. Commitments on the Goldman Sachs-led deal are due by Thursday, June 8 at 10 a.m. ET.

Star pupil

Aside from tapping both loan and bond investors, sources said Hub International’s recurring revenue model, strong free cash flow generation as well as minimal capex and working capital requirements will make the market more willing to absorb the chunky debt offering.

The company, which has been backed by financial sponsor Hellman & Friedman since 2013, provides insurance to a wide range of clients in industries such as transportation, construction, healthcare and real estate, with no one sector accounting for more than 17% of its total commissions and fees, according to a lender presentation.

In a lender call to market the refi, Hub’s management highlighted the company’s recent earnings growth, with 7.5% organic commission and fee growth, 15% in total revenue growth and 12% in adjusted EBITDA growth for its most recent quarter ending on March 31.

Cap table (via 9fin)

“This is about as steady of a business as you can find,” a portfolio manager said. “If it gets tougher for everyone else, they stand out even more, because they have a very high percentage of recurring revenue, and very strong free cash flow generation with minimal capital expenditures.”

Hub International is marketing the deal on $1.529bn in run-rate EBITDA, including adjustments for acquisitions that the company intends to complete by September 1.

The transaction will bring first-lien and total net leverage to 5x and 6.5x, respectively.

Hub will have $858.8m in liquidity, including an undrawn $796.8m revolver and $62m in cash and cash equivalents, pro forma the deal.

“Based on back of the envelope math, it looks like it has 2x interest coverage,” the portfolio manager said. “That seems a little tight, but with its free cash flow generation, 2x here is better than 2x at almost any other business.”

On 28 April, Hub International also announced that that it had entered into a minority investment agreement with Leonard Green Partners, which valued the business at $23bn.

Hellman & Friedman and Leonard Green declined to comment for this report. Hub International and Goldman Sachs did not return requests for comment.