Carlyle Sweetens Bank Terms for Veritas LBO as Loans Reprice

Six months after agreeing to finance the biggest U.S. buyout of 2015, Wall Street banks have renegotiated their lending commitment to protect themselves from potential losses amid signs of strain in credit markets.

Lenders led by Bank of America Corp. and Morgan Stanley will now have more flexibility to boost terms on loans financing Carlyle Group LP’s purchase of Symantec Corp.’s Veritas data-storage unit, people with knowledge of the matter said Thursday. While the banks were able to renegotiate partly because earnings weakened at Veritas, the new terms also mean they have a better chance to syndicate the deal in a leveraged-loan market that’s mired in its worst slump since 2008.

“The market has repriced,” said Eric Gross, a credit strategist at Barclays Plc in New York. “Appetite for new risk, especially for anything with a high amount of leverage is weak and that’s a challenge for bond and loan syndicate desks. It can be especially difficult for banks when they’ve committed at certain levels.”

Loan Prices

Loan prices have plunged by nearly 7 percent since August when Carlyle announced that it was buying Veritas for $8 billion and locked in funding for the takeover. Selling riskier corporate loans has become so challenging that in the last quarter of 2015, banks were forced to boost yields on more than $23 billion of loans due to waning demand, up from $11.7 billion in the preceding three-month period, Bloomberg data show.

The latest bank to do this is Goldman Sachs Group Inc., which is underwriting a $1.5 billion loan to finance Silver Lake Partners and Thoma Bravo’s purchase of software company SolarWinds Inc. The bank this week decreased the price at which it’s selling the debt. The loan is now being offered at 95 cents on the dollar.

A representative for Goldman Sachs declined to comment.

Wall Street banks have struggled to offload debt they committed to last year to fund mergers and acquisitions before global markets cratered.

Wider Spreads

“The market has gravitated heavily into higher quality credit and that’s clearly where investors want to be,” said Steve Vaccaro, chief investment officer at CIFC Asset Management. “There’s also a premium for size. The spreads are wider in part because it’s harder to distribute larger deals today."

Under the changes lenders agreed with Carlyle for the Veritas purchase, the banks will have more flexibility to boost yields and offer discounts on the loans when they try to sell them to capital-market investors, said people with knowledge of the matter, asking not to be named because the discussions are private.

Symantec and Carlyle agreed to cut the purchase price for Veritas to $7.4 billion from $8 billion after uncertainties developed regarding the transaction, the companies said in a Jan. 19 statement. The re-pricing also reduced the debt component of the deal, allowing a high-yield bond offering to be cut by about $950 million, the people said.

More Equity

The new agreement will boost the equity portion of the deal to 40 percent from 33 percent, and reduce leverage to 5.8 times earnings from 6.7 times earnings, people familiar with the matter said last week.

It comes after the banks shelved a $5.5 billion debt offering in November to finance the Veritas acquisition -- the largest leveraged buyout announced last year -- as investors shunned risky corporate debt amid concerns that global growth was slowing. Since then debt markets have deteriorated further, and global issuance of new debt this month slowed to its lowest in more than a decade.

Representatives from Bank of America, Morgan Stanley and Carlyle declined to comment. A representative for Symantec didn’t provide comment.

Carlyle and Symantec completed their transaction Friday, the companies said in separate statements. Banks will be required to fund the Veritas purchase once the transaction closes, provided the deal conditions have been satisfied.

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