The new €950m TLB will push the maturity of the existing loan due in May 2025 out to May 2028, alongside a new minimum $400m TLB. Loans are guided at E+ 475 bps and S+500 bps, both with OID talked between 97 and 98. The facilities are expected to be rated B2 by Moody’s and B by S&P. 

“[It is a] good business, very resilient revenues and difficult to see it going backwards unless there's a regulatory change in key jurisdiction. Even then it's more diversified geographically than back in 2018,” said one buysider looking into the deal.

The deal is marketed at 4.55x net senior secured leverage based off a €250m of Adjusted EBITDA for FY 2022 that is dressed up from the reported figure by around €25m of exceptional addbacks and €7m of run-rate adjustments.

Not everyone is convinced, however, that it is the right capital structure. 

“Given many years of underperformance and poor cash flow generation, neither the structure nor pricing are adequate for TMF,” said a second buysider. The company has reported 4.5x first lien net debt leverage in 2022, according to annual report. 

Double trouble

The new interest burden will almost be double compared to when it priced its €950m 2024 TLB way back in 2017 at E+325 bps and par. The funds backed CVC’s acquisition for €1.75bn. Its €200m 2024 2L, meanwhile, came at E+ 687.5 bps and 99.5. In July 2022 Abu Dhabi Investment Authority has bought a minority stake in the business. 

The Third buysider hopes that EBITDA growth combined with working capital normalisation will help the free cashflow generation turn more positive and lift up from low single-digit percentages when compared to proposed higher gross debt figure. 

“On the interest side, I agree it is coming up heavily, but I think if there is a credit to sustain it, this is the one,” the third buysider said. 

TMF Group offers accounting, tax, HR and payroll services to companies in more than 83 jurisdictions. The main appeal to buysiders is the company's resilient business model. Around 90% of the sales are recurring, with a low sensitivity to the credit cycle, as evidenced by moderate revenue growth in the 2008-2010 post crisis years and in 2020 when the Covid pandemic shut down a lot of businesses. 

“No business is immune to rising interests costs, but all in all, one of the better credits in the market and we will likely roll into new deal,” added the first buysider. 

Because of its global outreach and established long relationships, TMF is well positioned to cross-sell new services to existing customers in new regions. To maintain its position three buysiders expect the M&A strategy to be aggressive, but note that it was historically well executed. 

For asset-lite tech service business, such as TMF, some buysiders questioned a low valuation at around 12x-13x of marketed EBITDA compared to recent issuer Tricor, who’s merger with Vistra was valued at between 16x-17x EBITDA. 

“There is still a 60% equity cushion that helps the valuation and Tricor focuses more on fund services which bring a higher margin,” said the third buysider. 

In comparison, Tricor’s loans (B1/B+/BB-) split between $600m and €816m dollar and euro tranches alongside an additional HK$1.36bn TLB priced at S/E+ 475bps and a 97.5 OID at the end of March, tightening from 96–97 original talk. 9fin reported that deal was based on $441m of 2022 pro-forma combined LTM EBITDA (which includes $53m of run rate synergies) first lien and total net leverage at 4.9x and 5.7x, respectively.

“[TMF] is strong, non discretionary business with high recurring revenues, but FCF is a bit…, I'm still thinking through how I feel about interest payments getting so high,” said a fourth buysider. 

Serving lender-friendly

Buysiders decision-making would have been easier if the documentation would have tightened with the new transaction. The original covenant structure was stuck in the lender-friendly market of the past. 

“It is on top of a market that is changing, you have essentially a cashflow sweep that toothless,” said the third buysider. 

Documentation has been quoted as “shoddy” or even comes as a laughing matter for some buysiders. 

“Current margin ratchet levels are a joke,” said the first buysider. 

The margin ratchet comes with a six-month holiday that cuts margin by 25bps on each of its two step-downs. The first already set above the opening leverage at 4.75x and the second step-down not far off at 4.25x. 

“It is essentially gonna go down to 50bps in a year,” said the third buysider. There is also an ESG ratchet that is only going down 12 basic points and based on still to be defined KPIs. 

Unlimited payments basket are set at opening leverage and unlimited dividends can be done almost instantly. The general basket is set at 50% of EBITDA which is aggressive for the market and incremental debt very aggressive with junior debt can levered up to 7x, complains the buyside. 

“CVC is a long term credit fund and less aggressive sponsor, so why would they need that much flexibility?” asks the third buysider adding that if new money should come to this deal to clear out the second lien debt, documentation should change for better. 

The deal has a ticking fee and some buysiders noted rumours that transaction won’t be funded for the next three-to-six months. The ticking fee is will kick in at 50% margin after three months and then start paying in full in six months. 

“So you could get paid nothing for three months and then after six months immediately only 450bps because of the step-down“ said the third buysider. “For us it is a relative value discussion, this already had a very tight margin and if you count in the new ratchets you might find better use of your money,” said the third buysider. 

A spokesperson for TMF has said that the company is confident that “we can sign the amend & extent for our financing”.

Commitments are due on Thursday (27 April) at 5pm London time. 

Barclays, Goldman Sachs, HSBC and Nomura are physical bookrunners on the euro-denominated loan, while Goldman Sachs runs the books on the dollar piece. 

Abu Dhabi Investment Authority, CVC and Nomura declined to comment. 

Barclays, Goldman Sachs, and HSBC did not respond to a request for a comment by the time of the publication.