Blackstone Group LP will get cheaper loans backing its buyout of Gates Global Inc. than originally sought as investors are poised to embrace a deal whose leverage exceeds lending guidance laid out by regulators.
The interest-rate margin on $2.76 billion of bank debt was reduced to 3.25 percentage points more than lending benchmarks from as much as 4 percentage points offered earlier, according to a person with knowledge of the financing. The buyout will bring Gates’s ratio of debt to earnings before interest, taxes, depreciation and amortization to 7.3, according to Moody’s Investors Service.
Blackstone, the world’s biggest private-equity firm, agreed to buy the Denver-based industrial-products maker from Onex Corp. and Canada Pension Plan Investment Board for about $5.4 billion. The buyout financing is being offered to investors as the Federal Reserve and Office of the Comptroller of the Currency insist on minimum underwriting standards after updating their leveraged lending guidelines last year.
Regulators said in March 2013 that debt levels of more than six times Ebitda “raises concerns” and that minimum standards should consider a borrower’s ability to repay and “delever to a sustainable level within a reasonable period.”
The debt is being marketed to investors with total leverage of about 6.6 times Ebitda, according to a second person with knowledge of the financing, who wasn’t authorized to speak publicly.
Gates has a B3 rating at Moody’s, or six levels below investment grade. The company’s B+ grade at Standard & Poor’s is two steps higher
The buyout loans, being arranged by Credit Suisse Group AG, are denominated in both U.S. dollars and euros.
The interest that Gates will pay for the $2.49 billion term loan is tied to London interbank offered rate, while the 200 million-euros ($270.6 million) portion has a coupon linked to Euribor, according to the other person with knowledge of the financing, who also was not authorized to speak publicly about the deal. There’s a 1 percent floor on both variable benchmark rates.
Investors are asked to commit to the deal by 2 p.m. tomorrow in New York, according to the person with knowledge of the financing. New York-based Blackstone is also using about $1.5 billion of bonds to fund the buyout, according to data compiled by Bloomberg.
Drew Benson, a spokesman for Credit Suisse, declined to comment on the financing. Christine Anderson, a spokeswoman for Blackstone, declined to comment.