November 23, 2017 / 12:54 PM / a year ago

LPC-Opportunistic US leveraged loans face investor pushback

NEW YORK, Nov 23 (Reuters) - Opportunistic leveraged loans for US companies, including nutritional supplement maker General Nutrition Centers (GNC) and digital research company Research Now, are facing pushback from investors and two lower-rated companies pulled deals this week citing adverse market conditions.

GNC is attempting to extend a looming 2019 maturity in the loan market after last week’s US high-yield wobble sank its plans to raise bonds and investors are lobbying Research Now to cut the size of a proposed dividend payment to its private equity owners.

Rising volatility in the wider capital markets is putting pressure on loans for riskier and more indebted companies, which are trying to take advantage of strong investor appetite and near perfect borrowing conditions to cut their borrowing costs.

Orthopedic company DJO canceled a proposed amendment and extension of its existing loan and midstream energy company EagleClaw shelved a repricing transaction this week.

“Obviously a strong market brings less than stellar deals forward,” said one investor. “A lot of the terms have been fairly aggressive. There are credits that aren’t performing great, and these haven’t necessarily syndicated so well.”

Investors have been rattled by weak third quarter earnings for troubled sectors and banks’ predictions that the US could be facing a cyclical downturn and are pointing to specific credit issues for each of the firms that are experiencing a rougher ride in the market.

Vitamin retailer GNC has not been immune to the problems within the industry as online sellers continue to take a toll on bricks-and-mortar stores. The company launched a US$705m five-year loan on November 8 to push out its maturity profile from 2019.

GNC was also trying to sell US$500m of bonds but high-yield buyers showed no interest. The company is now considering a loan only deal with a shorter tenor and pricing of up to 1000bp over Libor.

That puts the yield at around 11.45%, which is 2.25 times the average primary yield of 5.07%, according to Thomson Reuters LPC data.

GNC has asked Bank of America Merrill Lynch to find a clearing price as it needs to get a deal done before its existing loan due in 2019 becomes current next year, one investor said. GNC is rated B1.

Bank of America Merrill Lynch declined to comment.


Investors are also pushing back on a US$191m dividend payment to Research Now’s private equity owners, which is part of a deal that finances the company’s merger with Survey Sampling, and also includes a US$700m first-lien loan and a US$250m second-lien loan.

Guidance on the first-lien loan opened in the 450bp-475bp over Libor and in the 850bp-875bp over Libor range on the second-lien.

Sources are also sceptical about US$68.3m of synergies totaling 33.7% of Ebita which are being used to get Ebitda to the marketed US$202.4m level. Loan agreements generally cap add-backs at 20%.

The dividend and Ebitda add-backs have made leverage too high for the investors, who are putting pressure on the sponsors to cut the size of the dividend to make the deal more palatable, investors said.

Commitments were due on November 16, but the deal is still in syndication. The sponsors are Court Square Capital Partners and HGGC. Goldman Sachs is leading the deal and declined to comment.

Research Now is rated B2. The first-lien loan is rated B2 with the second-lien loan rated Caa1.

The two postponed loans also faced pushback from investors on terms and floundered against a backdrop of outflows from retail loan funds, including another US$529.8m of outflows for the week ending November 15 and US$4.4bn of high-yield bond outflows. (Additional reporting by Andrew Berlin. Editing by Tessa Walsh)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below