Goldman Erased From Blackboard Buyout After Tightening Terms
Goldman Erased From Blackboard Buyout After Tightening Terms
Jin Lee/Bloomberg
The stiffer terms from Goldman Sachs Group Inc. reflect concern at the firm that credit markets are overheated and that risks are rising as speculation swirls about sovereign defaults in Europe, according to one of the people with knowledge of the firm’s decision.
The stiffer terms from Goldman Sachs Group Inc. reflect concern at the firm that credit markets are overheated and that risks are rising as speculation swirls about sovereign defaults in Europe, according to one of the people with knowledge of the firm’s decision. Photographer: Jin Lee/Bloomberg
July 11 (Bloomberg) -- Goldman Sachs Group Inc. was left out of financing Blackboard Inc.’s leveraged buyout after the investment bank stiffened terms. Goldman Sachs increased the so-called flex on the portion of the financing it originally agreed to provide Blackboard, the education-software maker being acquired by Providence Equity Partners Inc. Cristina Alesci reports in this edition of Deal Desk on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Goldman Sachs Group Inc. (GS) was left out of financing Blackboard Inc. (BBBB)’s leveraged buyout after the investment bank stiffened terms, another sign that private- equity deals are becoming harder and more expensive to complete.
Goldman Sachs increased the so-called flex on the portion of the financing it originally agreed to provide Blackboard, the education-software maker being acquired by Providence Equity Partners Inc., according to people with knowledge of the deal. The change would have given Goldman Sachs a bigger cushion if credit markets moved against the New York-based firm before the $1.64 billion deal closed.
Providence balked at the new terms and the sale’s announcement was put off while the firm lined up a new lender. It’s the latest in a series of deals that have been delayed or repriced as credit markets show signs of stress. New leveraged loans fell 18 percent to $116.4 billion in the second quarter from the first three months of this year, according to Standard & Poor’s Leveraged Commentary and Data.
“A Greek sovereign debt default will most certainly lead to risk contagion throughout the European banking system and send shock waves through the global capital markets,” said Michael Cerminaro, a co-founder of Sound Harbor Partners, a New York investment firm that lends to middle-market companies. Combined with a slowing U.S. economy, this “could put a damper on deal activity over the near term.”
Rising Risk
The stiffer terms from Goldman Sachs reflect concern at the firm that credit markets are overheated and that risks are rising as speculation swirls about sovereign defaults in Europe, according to one of the people with knowledge of the firm’s decision. They spoke on condition of anonymity because the bank’s strategies are confidential.
The so-called flex gives lenders the ability to raise the interest rate on a loan so long as it stays within a preset range that the bank and borrower agree on. If credit markets weaken, driving rates higher than the upper limit, a lender could be forced to absorb the difference or hold the loan until it can sell it at a better price.
Buyouts are typically financed with leveraged loans and junk bonds, which carry some of the highest interest rates and typically are among the first financing to be withdrawn when credit tightens. While buyout activity more than tripled last year to $95 billion, private-equity firms haven’t been able to pull off the same kind of multibillion-dollar deals they brokered before the credit crisis took hold.
Post-Crisis Deals
Del Monte Foods Co. is the biggest private-equity buyout since the collapse of Lehman Brothers Holdings Inc. in 2008 prompted banks to shun financing for leveraged transactions. A group led by KKR & Co. agreed to buy Del Monte for about $4 billion, plus $1.3 billion in debt, in November 2010.
Blackboard managed to get $1.15 billion in debt-financing commitments, according to a regulatory filing by the Washington- based company, with Deutsche Bank AG (DBK) stepping in for Goldman Sachs. Deutsche Bank was joined by Morgan Stanley and Bank of America Corp. in providing a $700 million first-lien term loan, a $100 million first-lien revolving line of credit and a $350 million second-lien term loan, according to the July 1 filing.
Michael DuVally, a spokesman for Goldman Sachs, declined to comment. Officials at Blackboard and Providence Equity didn’t return calls seeking comment.
Tighter Terms
The Blackboard deal follows two other buyouts crimped by tighter terms. Another Providence Equity deal, SRA International Inc., had to offer a bigger discount to sell its buyout loan. The provider of technology and consulting services priced an $875 million term loan at 95 cents on the dollar, less than the initial 99-cent price.
Similarly, Lawson Software Inc. (LWSN), acquired July 6 by Golden Gate Capital Corp. and Infor Global Solutions for $1.81 billion, sweetened terms for loan buyers by boosting the yield and cutting the maturity on the loan funding the buyout. Banks including Credit Suisse Group AG sold almost all of the $440 million portion of a $1.04 billion buyout term loan for St. Paul, Minnesota-based Lawson after declining the week before to market that piece of the deal amid falling loan prices. The bank group also included Bank of America, Morgan Stanley, Royal Bank of Canada and Deutsche Bank.
To contact the reporter on this story: Cristina Alesci in New York at calesci2@bloomberg.net
To contact the editors responsible for this story: Rick Green in New York at rgreen18@bloomberg.net; Faris Khan at fkhan33@bloomberg.net
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