REFILE-Jefferies seizes sterile US loan market with $ 1.275 billion in risky debt


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NEW YORK, April 16 (LPC) – Investment firm Jefferies backed an otherwise sterile U.S. leveraged loan market in April, bringing in a new offering worth $ 1.275 billion on attractive terms to attract a base of investors hungry for yields still weighing the impacts of the coronavirus.

Volatility triggered by the virus rocked markets, forcing companies to shut down and boost liquidity. Falling productivity has pushed the economy into recession.

The US leveraged loans lasted almost a month without a largely syndicated deal. Since April 6, however, Jefferies has stunned the market with three deals offering investors double-digit returns to lend to companies that the global pandemic has left in dire need of liquidity.

“When Jefferies has a lot in the market when nothing else is happening, we know there is meaning to an opportunity,” said a chief executive of a bank. “They are working with a lot of companies in sectors affected by the virus like restaurants or retail, so Jefferies can come in and structure a deal with high coupons.”

The intense activity of the investment firm is a timely reminder of the ability of so-called “non-bank lenders” to support highly leveraged firms during downturns when more heavily regulated institutions are avoiding risk.

Following guidelines released by regulators in 2013 that prompted some of the biggest investment banks to cut lending to some of the riskiest deals, Jefferies, who wasn’t handcuffed by the same rules, was able to step in and offer more debt compared to a company profits than its competitors.

On Tuesday, cosmetics firm Revlon unveiled a Jefferies-led $ 850 million senior loan with a 1,050bp margin on Libor and added a 2% pay-in-kind feature, according to three sources close to the transaction.

Jefferies also finalized an additional loan of $ 125 million for Everi Payments on Tuesday. Investors oversubscribed the deal, allowing the gaming industry supplier to tighten the offered margin from 200bp to 1050bp against Libor, the three sources said.

The two deals come a week after Jefferies set a deal price for Golden Nugget. The financing is the third deal that the investment firm is carrying out in seven months for the casino operator owned by Texas businessman Tilman Fertitta. The demand was enough to allow the company to increase the loan from $ 50 million to $ 300 million, Refinitiv LPC reported on April 8.

“Jefferies has certainly been busy. Some accounts only received $ 50,000 in allowance on the (Golden Nugget) loan. There is a ton of money chasing stressed or struggling names right now, ”said one investor.

Jefferies’ timely risk-taking is not without consequences.

On Wednesday, S&P Global Ratings revised Jefferies’ outlook to negative and confirmed its BBB rating. Market stress caused by the coronavirus will reduce the profitability of the investment firm in the coming months in part due to declining profits at its investment banking arm Jefferies Group LLC, the rating firm said in a report.

Jefferies Finance LLC, a joint venture between the investment firm and MassMutual that syndicates corporate loans, had over $ 2 billion in commitments made at the end of February and now faces a daunting challenge to syndicate that debt when the terms market are at their maximum. more difficult, according to the rating agency.

Spokesmen for Jefferies, Everi and Golden Nugget did not respond to a request for comment.

HIGH STAKES GAME

Investors have gladly absorbed new, smaller loans for Golden Nugget and Everi, allowing the two to tighten their offer terms, but Revlon’s larger deal comes as the company tackles erosion in earnings and flows. cash, according to an April 3 report from Moody’s Investors Service.

Launched as part of the Revlon Consumer Products Corp subsidiary, the new US $ 850 million term loan is part of a business recapitalization aimed at increasing liquidity and improving the borrower’s maturity profile.

The first lien term loan comes with a second lien facility of US $ 950 million and a third lien loan for an undetermined amount, according to a presentation by the Revlon lender on Tuesday.

The newly issued debt will repay a $ 200 million loan it signed with Ares Management last August, refinance part of a seven-year $ 1.8 billion loan that Revlon raised in 2016, and fund projects. general objectives of the company, according to the three sources cited above.

Moody’s demoted Caa1’s subsidiary to Caa3 and downgraded its senior secured loan to Caa2 from B3, according to the April 3 report.

Struggling with a high debt-to-earnings before interest, taxes, depreciation and amortization ratio of around 11.0 times, Revlon also has to repay a $ 500 million bond due February 2021 and an $ 82 million loan coming to due in July next year, Moody’s added.

To rally lenders, Revlon not only offered a juicy 1050bp margin, but also set a Libor floor of 1.5% and set the loan maturity date at June 2025, according to the three sources. Typically, senior loans have a term of seven years.

Lenders can also be assured that the new financing will be secured by the assets of the company, including foreign affiliates that own some intellectual property on well-known brands such as Elizabeth Arden and American Crew, according to the lender’s presentation.

A Revlon spokesperson was not immediately available for comment.

Businesses linked to the travel, entertainment and retail sectors have been hit particularly hard by the coronavirus as consumers stay indoors and their debt has collapsed.

Revlon’s existing term loan, maturing in 2023, struggled to recover alongside other secondary market transactions this month. The loan was listed at an average bid of 37-42 cents to the dollar on Tuesday, compared to an average bid of 31-35 cents when the U.S. leveraged loan market bottomed out on March 23, two sources say. .

“These sectors are the most linked to the virus, so their lending has gone down much more,” said George Goudelias, managing director of asset manager Seix Investment Advisors. “Not only are these companies affected by volatility, but it’s going to be an expensive exercise if you first borrow in a market that hasn’t been active.” (Reporting by Aaron Weinman. Editing by Michelle Sierra and Kristen Haunss.)

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