Apollo to pay more on Presidio amid reputational, credit questions

Thu Jan 22, 2015 6:29pm EST
 
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By Lisa Lee, Mike Stone and Mariana Santibanez

NEW YORK (Reuters) - The term debt financing backing Apollo Global Management LLC's [APOLO.UL] buyout of information technology services provider Presidio Inc is facing pushback from loan investors wary of an unpopular sponsor, the deal's high leverage and issues related to the credit itself.

The $650 million term debt facility has been struggling to attract enough buyers since the deal was launched in early January, people familiar with the planned borrowing said.

To entice investors wary of Presidio's lack of hard assets, high leverage and business model, lead arranger Credit Suisse this week made some adjustments to the credit, sources said. Buyer Apollo may also be paying a price for its involvement in restructuring Caesars Entertainment Co, at a time when debt and bondholders stand to face losses on roughly $18 billion of debt.

"Because Apollo is wiping out the Caesars debt holders, the 'debt buyer universe has shrunk' for the Presidio transaction," a source close to the financing said.

An Apollo spokesperson declined to comment.

The sweetened terms will hike Apollo's borrowing costs, but are seen as necessary to get the deal done. The spread over Libor was increased to 525bp from prior guidance of 475bp, the original issue discount slashed to 97 from 99, and the call protection extended to one year from six months.

The loans consist of a $600 million seven-year term loan and a $50 million revolver. A notes issuance of $400 million also supports the $1.3 billion acquisition.

Investors want to be better compensated for the risk taken as the company is increasing its financial leverage to fund the buyout. Apollo's buyout boosts leverage to the mid-six times Ebitda range, according to Moody's Investors Service. Loans that cross the six times leverage threshold have been criticized by regulators for overloading on risk, and could potentially lead to penalties for bankers.   Continued...

 
Leon Black, Chairman and CEO Apollo Global Management, LLC, takes part in Private Equity: Rebalancing Risk session during the 2014 Milken Institute Global Conference in Beverly Hills, California April 29, 2014.  REUTERS/Kevork Djansezian