Investors should “vigorously resist” change-of-ownership provisions in Mydentist’s planned junk bonds because they will weaken noteholder protections, Covenant Review said.
The “egregious and unprecedented” provisions would let the dental provider bypass debt-level tests if it’s bought by another owner, Sabrina Fox and Scott Josefsberg, analysts at the New York-based credit research company, wrote in a research paper. That could set a precedent for other junk-bond issuers, they said.
Europe’s “high-yield market could suffer further erosion” of takeover protections if the Mydentist terms are accepted, the analysts said. Bondholders should “vigorously resist” them, they said.
Changes to the portability protections mean Mydentist wouldn’t have to buy back the planned bonds, even if a new owner saddles the company with more debt, Covenant Review said. This is due to easier debt tests and an unlimited ability to waive buybacks that would otherwise be triggered by a change of ownership. Junk-bond issuers are usually only able to skip change-of-ownership buybacks once and only if they pass debt tests, the analysts said.
Mydentist didn’t immediately respond to requests for comment on the paper.
The Manchester, England-based operator of more than 650 dental practices is offering 425 million pounds ($560 million) of six-year fixed-rate notes and floating-rate notes to repay existing debt in the biggest sterling junk-bond sale this year.