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Wilton Industries’ new USD 950m buyout financing package is facing challenges emblematic of the primary market’s broader struggle, said several buysiders looking at the deal. Its connection to the retail sector, where several recently issued aggressive deals fell apart in the secondary market, also exerts pressure on Wilton and its offering, said the buysiders.
Lead arrangers UBS and Deutsche Bank launched the financing package 19 July, to back Wilton’s acquisition by Chicago-based private equity firm GTCR Golder Rauner. Illinois-based Wilton is a creator and manufacturer of kitchenware and food decorating supplies through its EK Success business.
The credit facility includes a USD 65m six-year revolver and a USD 585m seven-year term loan talked at Libor+ 300-325bps, a USD 225m eight-year second lien talked at Libor+ 650bps, and a USD 75m mezzanine tranche talked at Libor+ 850bps. The first lien features a full covenant package, while the second lien is covenant-free, noted a buysider. The revolver will remain undrawn at closing.
Pro forma the acquisition, Wilton’s leverage will jump to 4.6x through the first lien, and 6.9x total, based on 30 June TTM Ebitda of USD 127.9m and USD 885m in total debt. The Ebitda figure includes synergies expected from the acquisition, said several buysiders, adding that the deal’s structure was so unattractive that they did not delve into the company’s numbers to determine whether the adjustments were justifiable.
At nearly 7x total leverage, pricing on the proposed credit facility’s second lien and mezzanine tranches seem meager compared to the abundance of paper available at deep discounts in the secondary market, said the buysiders looking at the deal.
“The terms do not reflect what is going on in the current market,” said one buysider who passed on the deal.
Investors may require pricing of at least Libor+ 425-450bps for the first lien, said another buysider who passed on the deal, though many others expressed doubt the deal would net a full commitment from the market even if the lead arrangers elect to boost pricing.
“The secondary market is offering better opportunities,” one investor said. “Do you look at a new issue that is lagging, or do you look at the secondary market?”
Many investors have shifted their focus away from new issuance and are now concentrating more on scooping up loans that have traded off significantly in the secondary market over the last few months. Discount hunting has less risk associated with it compared to buying a new deal that is likely to fall on the break, several investors said.
Looking beyond technicals, Wilton’s position in the consumer products space also does not bode well with investors right now, buysiders said. Retail troubles have a negative effect on Wilton from a valuation perspective, and many loan investors are avoiding consumer products and retail altogether, said one buysider. Many asset managers already have exposure to the recent LBO financing for crafts products retailer Michaels Stores, further curbing appetites for the Wilton deal, added another buysider.
At 6.9x, Wilton’s total leverage is unusually high for a consumer products company in today’s market, several buysiders said. The company has interesting assets, but the leverage is too high, another investor added. The inclusion of a mezzanine tranche in the credit facility implies an aggressive credit structure and made the credit facility even less attractive, they said.
Buysiders comped Wilton to the Michaels deal as well as crafts supplies manufacturer Oriental Trading. Michaels issued its USD 2.4bn covenant-lite term loan B in October 2006, then in May 2007 came back to market with a repricing at Libor+ 225bps. The loan is rated B-/B2 with total leverage of 8x, and now trades in the 92.5-94 context with a spread to maturity of Libor+ 321.3bps.
Oriental Trading came to market in July 2006 with a USD 410m term loan B rated B/B3 at Libor+ 275bps, and a USD 180m second lien rated CCC+/Caa1 at Libor+ 600bps. Trading in the term loan is thin, and the second lien trades in the 95-98.5 context with a spread to maturity of Libor+ 642.6bps, according to Markit. At the time of the financing, Oriental Trading had total leverage of approximately 7x.
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