Vintage debt sees renaissance

Portability provisions in both loans and high yield bonds have existed for years. Their attractiveness depends very much on the incoming sponsor’s view of the quality of the existing debt package, and whether market conditions are optimal to improve on it. 

For this reason, it is not often common in transactions where the sponsor is selling ‘upwards’ to a more sophisticated and larger sponsor. 

“They’ll want to put their own debt package on it,” said a second source. 

However, this is not always the case, and sometimes the existing debt package, done in more favourable conditions, is better than what could be obtained in the present market. In these circumstances, the second source pointed out, they could be a real sweetener to a prospective buyer.

“Packages done in the last two years, with perhaps two years left to run, could make debt portability very attractive to a sponsor.”

Enva’s existing debt, according to 9fin’s private credit database, has two senior secured term loans in euros and pounds, coming due in 2029. 

A bridge to better times?

In certain cases, a portability provision could be used as a bridge for the incoming sponsor, ahead of a refinancing process. However, the second source pointed out that this would be an expensive way to approach a bridge financing.

“You have to pay fees to the incumbent lender for their portability provision. That’s expensive for what could be a six-month loan.”

There’s also the added complexity of the white list. Portability provisions allow the lender to provide a white list of sponsors to whom they would be willing to port the debt. Sometimes these lists are long, (20 sponsors), and sometimes they are restrictive.

Much is written on portability in the debt markets. 

What is clear, however, is that in the 2023 market, lenders are not offering up portability provisions in order to get in on a deal. There simply isn’t the need at a time when the power has moved into lenders’ hands.

But those that already have portability provisions may find sponsors on the white list a little hungrier than normal to snap them up.

Macquarie declined to comment, while Enva and Isquared did not respond to requests for comment. 

New faces in public to privates 

Of course, portability is but one of a number of tricks to revive the primary market. Another is the public-to-private process. Presently, it seems like another day, another P2P. 

Particularly interesting, however, are two things. Number one, private debt funds that have never done P2Ps before are showing up as sole lender in P2Ps, and, two, the scheme letters that accompany the P2Ps are giving a valuable glimpse into where debt structures and pricing are shaking out. 

So who are these new entrants? Pemberton Asset Management did the financing on Cap10’s take private of energy provider to UK social housing, SureServe. Barings backed IK Partners’ take private of medical technology services provider Medica. Hayfin and Deutsche Bank did Providence Equity’s take private of conference organiser Hyve, then Eurazeo provided the debt backing Montefiore’s acquisition of Exa, project management in the luxury sector. 

Barings’ financing included a seven-year £84.3m unitranche paying SONIA + 625 bps. Meanwhile, Hayfin’s financing was chunkier (price-wise) at E+ 725 bps. More details will shortly be available on Pemberton’s financing of SureServe.

Meanwhile, a CVC-led consortium has made a proposal of a possible offer to acquire the entire share capital of UK payments provider, Network International. Although on 11 May their deadline was extended.

Outside of P2Ps, sponsor PAI Partners is in negotiations to acquire European leisure group Looping Group, venture debt provider Shard Credit Partners provided $4m in debt financing to pre-employment screening service Veremark, and Park Square Capital and SMBC Group EMEA committed unitranche facilities to support KKR in its buyout of April Group.

Triple Point Private Credit has provided a multi-million pound debt and working capital facility to IT services and consulting business Atech Cloud to support its acquisition strategy.

The week’s reading

Proskauer looks at change of control clauses

Interpath Advisory has provided a nice view on interest rates

Pantheon Ventures has raised €3bn for credit secondaries

Interest cover ratios in private credit are getting scary

Baxter spin-off sponsors get $1.9bn private credit facility

Private debt titans use hidden contracts to get an edge on rivals

Blackstone Credit has hired Jane Bradshaw as managing director, European head of capital markets, starting on 5 June. Bradshaw was formerly co-head of leveraged debt capital markets at Morgan Stanley.

Something missing? Want your deal in here? Email me josie@9fin.com