Investors are poised to provide Informatica Corp. a lower rate than the software maker initially proposed on about $2 billion of loans for its buyout by Permira and the Canada Pension Plan Investment Board.
The company will pay interest at 3.5 percentage points more than lending benchmarks, decreasing to 3.25 percentage points once its total net debt level falls to 6.25 times a measure of earnings, according to a person with knowledge of the deal, who asked not to be identified citing lack of authorization to speak publicly.
The rate is 0.25 percentage point less than that initially marketed last month, as a diminished supply of new financings in the leveraged-loan market continues to favor borrowers.
Informatica is getting the lower financing rate even as the $5.3 billion buyout pushes its leverage to more than nine times earnings, according to Moody’s Investors Service. Lending guidance issued in March 2013 by regulators including the Federal Reserve and Office of the Comptroller of the Currency says that leverage of more than six times earnings raises concern.
“It’s generally a very good environment for borrowers,” Raj Joshi, an analyst at Moody’s, said in a telephone interview. Informatica’s leverage is “high” and “there will be limited margin for error if something goes wrong.”
Bank of America Corp., Goldman Sachs Group Inc., Credit Suisse Group AG, Macquarie Group Ltd., Morgan Stanley, Nomura Holdings Inc., Royal Bank of Canada and Deutsche Bank AG are underwriting the deal, according to data compiled by Bloomberg. The loans include a $1.7 billion portion and a 250 million euros ($272 million) piece, each maturing in seven years, the person said. Investors are asked to commit to the deal by 5 p.m. Monday in New York.
Spokesmen for Bank of America, Credit Suisse, Macquarie, Morgan Stanley, Nomura, RBC and Deutsche declined to comment. Goldman didn’t provide comment. Debbie O’Brien, a spokeswoman for Informatica, didn’t return a phone call seeking comment.
Informatica initially proposed paying 3.75 percentage points more than the London interbank offered rate for a $1.875 billion loan, and then reduced the size of the offering in the U.S. to carve out a euro-denominated piece, according to data compiled by Bloomberg. Benchmarks for the floating-rate debt -- Libor and Euribor -- were set a 1 percent minimum.
Informatica is also planning to issue $650 million of notes to help finance the buyout, according to a person with knowledge of the deal. The notes may be sold Tuesday at a yield of 7.25 percent, said the person, who asked not to be identified citing lack of authorization to speak publicly.
“We believe the 7.25 percent guidance offers an attractive yield,” CreditSights Inc. said in a Monday research note, giving an “outperform” recommendation on the bonds. “The company has an attractive business profile given recurring revenues, high margins and low capital intensity.”
Moody’s rates the Redwood City, California-based company B3, six levels below investment-grade. The credit rater said last month that the software maker’s outlook is “positive,” with revenue expected to increase in the high single-digit percentages.
“This company is going through a transition where subscription-based services are growing much faster than the traditional licensed sales,” said Joshi. The shift to subscriptions can provide more stable, recurring revenues overtime, he said.