Apollo Said to Offer Exit to Loan Buyers Who Took LBO Gamble

Loan investors who took a risk on Apollo Global Management amid a meltdown in debt markets last year are about to receive their payoff.

Holders of about $550 million of RegionalCare Hospital Partners Inc. loans, who waived their right to be repaid when Apollo bought the company in November, are about to be paid back fully thanks to a new deal struck by the private equity firm, according to people with knowledge of the matter.

RegionalCare is marketing $800 million of bonds this week to merge with Capella Healthcare Inc. and will use proceeds of that offering to pay down its existing lenders, said the people, who asked not to be identified because the information is private. The deal is being led by Barclays Plc, the people said.

Apollo purchased RegionalCare from Warburg Pincus in November after the hospital operator’s lenders allowed the deal to go through without exercising their right to be paid back under the so-called change-of-control clause in their credit agreement. Without that consent, Apollo would’ve had to arrange new funds to retire those borrowings. Apollo won over the lenders by offering them a special one-time fee and a boost in the interest on the loans, the people said.

Good Incentive

“It can be a product of difficult financing markets when a sponsor looks to work around the change of control," said Jeffrey Ross, a partner at Debevoise & Plimpton, who advises on acquisitions and financings. “For the lenders, if they don’t worry about the new owner, the boost in spreads and a fee is a good incentive to give the waiver."  

The change of control is a provision typically used in credit pacts to safeguard investors by giving them a way out when a company’s ownership changes.

Apollo won the creditors’ permission by boosting the interest on a $341 million first-lien loan by 0.75 percentage point to 6 percent, said the people. Lenders also got a one-time fee of 0.75 percent for the waiver.

Holders of a $215 million junior loan got a similar bump up on the interest, pushing the coupon on that financing to at least 11.25 percent. Investors in the debt also got a one-time 3 percent fee for providing the consent, the people said.

A representative for Apollo declined to comment.

The new bonds will be sold as seven-year secured notes with investors meetings scheduled in New York on Tuesday, before heading to other cities, including San Francisco on April 22, one of the people said. The banks on the deal are expected to provide indicative pricing on the bonds after that.

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