Paying two-thirds of EBITDA on interest

“Whilst a hypothetical company might previously have been able to relatively comfortably service interest costs equivalent to 36% of EBITDA, with plenty of cash left over for capex, taxes, working capital, exceptional costs, etc, now it’s paying £30m in extra cash interest each year,” said a direct lending source.

At zero base rate, a £100m EBITDA company levered 6x and paying S+ 600 bps would be paying £36m in annual cash interest, essentially 36% of the £100m EBITDA.

Yet at 11%-all in (a 5% increase in the base rate plus S+ 600bps) , annual cash interest on the same £600m of debt is now £66m (11%-all-in of £600m), pointed out the source.

Speaking of cov-lite…

It may be a comforting thought for those that have gone into the covenant-lite legal software provider Civica deal, priced at S+625bps, as reported. Civica’s sponsor, Partners Group, managed to ram home this pricing off of an opening leverage of 6.25x. 

The deal was done with a club of lenders that include Arcmont, GIC, Goldman Sachs, Golub, and ICG, according to a source close to the matter. 

And, although preference among private credit lenders is to take the biggest chunk in any financing, Partners Group succeeded in ensuring no one lender dominated the others with their share, the source close and a further source close said.

“It’s not in the sponsor’s interest that one lender holds the power,” said the second source close. “It was a divide-and-conquer approach — the sponsor did well,” said the second source close. 

Goldman Sachs, GIC and Partners Group declined to comment. Partners Group, Arcmont, ICG and Golub could not be reached for comment at the time of publication. 

The P2P term sheet

However covenants do seem to be alive and kicking elsewhere, as seen in the senior facilities agreement backing legal services provider DWF’s take private. However, those waiting for the publication of the full term sheet will be disappointed, as it appears that the SFA is all we’re getting on this particular P2P.

According to market sources, the lender’s legal counsel advised that the details in the SFA fulfilled the necessary disclosure requirements. Will this set a precedent, and be the end of our beloved transparent term sheets?

“Maybe it’s because at 2.7 stage you normally only have an interim facilities agreement and therefore need to publish a term sheet alongside the IFA, but if you have a full SFA at 2.7 you can just use that instead,” mused one market source.

But as for precedent setting, they doubt it. “If that’s the case I doubt it will be precedent setting as usually too time consuming to do full SFA by 2.7,” they said. 

…And let’s not forget

In the face of ongoing transatlantic consolidation in private credit, the most recent being Kudu and Apera, announced this week, 9fin sources reveal why some European asset managers say ‘non.’

Ares provided the unitranche loan for PAI Partners’ acquisition of a majority stake in hospitality equipment supplier ECF Group. The unitranche was marketed off a €90m EBITDA with a leverage below 5x.

Private credit funds are working with sponsors on debt packages leveraged at between 4.5-5x off of €60m EBITDA, with pricing of 650-700 bps for SK Capital’s sale of sustainable barrier packaging business Ipackchem.  

Talks to carve out consumer insights company WGSN from parent media firm Ascential have stalled ahead of summer. Initial deal pricing had placed WGSN at a £45-50m EBITDA valuation with a 6x leverage, with JP Morgan are advising on the deal.

Debt backing GTCR’s purchase of supply chain management software provider Once for All has come in at around 5x leverage on a €300m debt package, according to 9fin sources. Guggenheim and Blackstone have provided some of the €300m package, as previously reported by 9fin.

And Carlyle’s Nicola Falcinelli talks to 9fin about sponsorless credit opportunities investments.

There will be no Taking the Credit next week as I will be high in the Pyrenees. See you in a fortnight!