KIK buyout bond comes at steep discount

Fri Aug 21, 2015 12:10pm EDT
 
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By Davide Scigliuzzo

NEW YORK, Aug 21 (IFR) - Investor push-back on a bond deal backing the buyout of KIK Custom Products by private equity firm Centerbridge Partners forced underwriters to sell the deal at one of the steepest discounts seen in the US high-yield market in the past few years.

The US$390m eight-year bond, issued via Kronos Acquisition Holdings, was sold to investors at a reoffer price of 89.57 to yield 11% - some 150bp wider than the mid-9% originally targeted.

According to Thomson Reuters data, only two high-yield deals have been priced at lower discounts to par over the past three years: a US$150m subordinated note offering backing Apollo's US$1.3bn buyout of IT company Presidio, which was partly bought by Apollo itself at 80 cents on the dollar, and a US$250m note issue behind Apax's takeover of teen clothing retailer rue21, which was sold by underwriters at a discount of 73.

The deal for KIK, a producer of private label cleaning and household products, came under intense scrutiny for its high leverage and for some of the adjustments made to Ebitda to reflect expected cost savings.

"There were a lot of add-backs (to Ebitda) people don't believe in," said one banker who had reviewed the company's financials but decided to take a pass on the trade. "Investors are not buying it."

The financing package, which also includes a US$850m seven-year secured term loan, will bring KIK's leverage to around eight times, according to Moody's - well in excess of the six times ceiling that US regulators regard as problematic under leveraged lending guidelines.

The company calculates a lower pro forma leverage ratio of 5.9 times after adjusting its Ebitda figure to take into account US$40m in future cost savings.

Covenants on the deal were tweaked during marketing to further limit the ability of the company to incur new debt.   Continued...