| NEW YORK
NEW YORK Feb 14 Three years after exiting the
leveraged loan market during a wave of bond-for-loan takeouts
that saw droves of issuers pushing out maturities via the
high-yield sector, Accellent is back to raise $1.13
billion in first- and second-lien loans to fund its $390 milion
takeover of Lake Region Medical and to retire those very same
The contract medical device manufacturer is tapping the
market at a time when companies have been flocking to the
cash-flush loan market to take advantage of low borrowing costs
and issuer-friendly terms, made possible by yield-chasing
investors willing to lend at cheap rates.
A sustained supply of repricings, refinancings and
opportunistic dividend recapitalization deals have sent yields
lower and spreads tighter. Large corporate institutional term
loans are yielding 4.52 percent on average, compared with 4.76
percent in the fourth quarter of 2013, and down from 4.85
percent a year ago, according to Thomson Reuters data.
M&A supply remains lean, however, and loan investors are
hungry for new paper. Accellent's transaction, despite high
leverage and modest pricing relative to the company's
risk-return profile, according to investors, could benefit due
to its new-issue status.
"Accellent is new-money, new-issue and investors are starved
for new money. It's too early to tell if it will come at talk,
wider, or tighter," said one loan investor.
Signs were positive on Friday when Accellent pulled forward
the commitment deadline to February 20 from February 25 after
strong investor demand for the paper resulted in an already
oversubscribed book, sources said.
Accellent's deal includes a $75 million, five-year revolver,
a $795 million, seven-year first-lien term loan, and a $260
million, eight-year second-lien term loan.
Price guidance on the first-lien term loan is 350bp-375bp
over Libor with a 1 percent Libor floor, at 99.5, while the
second-lien is guided at 725bp-750bp, also with a 1 percent
Libor floor, at 99.
With the lack of new paper, the deal may yet sail through
the market even as investors are beginning to push back on
aggressively priced and structured transactions, in particular
on efforts to slice interest expense and lender protections.
The market is showing some resistance to repricings. Swiss
chemicals company Ineos pushed guidance to the wide end of price
talk and raised the Libor floors on its $4.1 billion
covenant-lite term loan, while Roundy's $460 million
covenant-lite refinancing term loan is also encountering some
Following the announcement of the acquisition of privately
held Lake Region Medical, which makes devices for cardiology and
endovascular markets, Standard & Poor's placed Accellent's
Single B corporate credit rating on negative watch.
"We believe Accellent's pro forma adjusted leverage could
approach 8.0 times and the acquisition could impair Accellent's
ability to continue generating free operating cash flow, which
has been a key support for its ratings," wrote credit analyst
Gail Hessol. "We also see risks in integrating a large
Accellent is marketing the financing package at 4.76x
first-lien debt to Ebitda and 6.32x total debt to Ebitda.
Moody's Investors Service also placed Accellent's ratings
under review for downgrade, including the company's B3 corporate
family rating. The review will focus on the financial leverage,
post-acquisition capital structure and ongoing operating
performance at both companies, the rating agency said.
Unless you believe the synergy story, to invest in the
first-lien debt at 350bp-375bp, at a slight discount with a
likely B2/B3 corporate rating, is a push, the loan investor
said. If problems arise, the second-lien becomes the equity, he
Accellent said in a regulatory filing that it anticipates
all existing senior notes and senior subordinated notes will be
repurchased or redeemed in full.
UBS is lead left on the first-lien term loan, while Goldman
Sachs is lead left on the second-lien loan. KKR is joint