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Arrangers of First Data’s USD 16bn credit facility may launch syndication as early as next week, said several buysiders and a sellsider. The sheer size and aggressive structure of the deal will make it a litmus test for the other LBOs stalled in the capital markets pipeline, said a buysider and a banker.
A fleet of banks is syndicating the mega loan for the credit card transaction processor, including Credit Suisse, Citigroup, Deutsche Bank, Merrill Lynch, Goldman Sachs, Lehman Brothers and HSBC. Timing for the launch is still up in the air, but the leads have been sounding out investors in recent days and will announce a schedule by next week, said a source close to the deal.
Bankers on the transaction reached out to selected buyside accounts this week to gauge where they may have to price the deal, said four investors queried by Debtwire. The leads focused initial discussion on large accounts who could anchor the process, they added.
The USD 14bn term loan B will likely be offered in the Libor+ 325bps to Libor+ 350bps range, along with a hefty OID in the mid- to low-90s, several buysiders said. Arrangers may initially offer it around 95, but will likely have to drop down closer to 90 to sell it off, specified a buysider and a sellsider. Despite these expectations, arrangers may not have the price flex available to offer a coupon over 300bps, cautioned another investor.
An OID of 95 on a deal priced at Libor+ 325bps would imply a spread to maturity of Libor+ 425bps-Libor+ 450bps, said on of the buysiders. As of now, feedback from arrangers is that the loan will still be marketed covenant-lite, all the investors added.
Both investors and issuers will watch reception of the deal closely as a gauge of the buyside’s liquidity in the wake of the credit correction of July and August, they said. Sponsors will be most interested in the response to the aggressive structure built into First Data’s loans a buysider pointed out, citing the high leverage and covenant-lite status currently contemplated by the leads.
For many investors, those structural concerns present a higher hurdle than specific credit worries, the buysiders said. An excessive debt load combined with weak lender protection could outweigh First Data’s steady cash flow and prominent market position, they added.
One buysider compared the First Data deal to Chrysler Financial’s recent issue, the last term loan of size to substantially syndicate to investors. Arrangers of that transaction launched with no maintenance covenants, though they subsequently added a debt-to-net worth covenant to the first lien tranche of the deal and a borrowing base covenant to the second lien piece. The auto loan originator ultimately priced its USD 4bn term loan B due 2012 at Libor+ 400bps with an OID of 95. It currently trades in the 97.036-98.107 context with a spread to maturity of Libor+ 450.4bps, according to Markit. The USD 29bn buyout by KKR will propel First Data’s leverage to nearly 9x, based on about USD 22bn in debt and USD 2.5bn in EBITDA, said buysiders. The USD 2.5bn EBITDA figure the issuer is using to market the deal includes about USD 500m in addbacks, said a buysider, who added he did not yet have a strong indication of what the addbacks consist of. First Data reported USD 2.1bn in TTM EBITDA as of 31 March, according to company filings.
Despite First Data’s strong history, lending to the credit on a highly leveraged basis magnifies the risk of a large customer deciding to take credit card operations in-house, one CLO manager pointed out. For example, major customer Bank of America has built up its credit card operations recently with the acquisition of MBNA America, and could have enough scale to start processing transactions itself, he said. Such a scenario would put intense pressure on First Data to keep costs low, he added.
The proposed financing for First Data backs its USD 29bn take-private by KKR, which is also slated to include USD 5.5bn in senior unsecured bonds, USD 2.5bn in senior subordinated bonds, and USD 7.7bn in sponsor equity.
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