70 International Financing Review March 21 2020Human Services and Centers for Medicare
and Medicaid Services over Medicaid drug
rebates for its product Acthar Gel.
Acthar is used to treat a rare form of
infant seizures.
A Washington judge ruled on Monday
that the company is liable to pay higher
rebates for Acthar to state Medicaid
programmes, which means that the
company could owe at least US$650m in
Acthar-related Medicaid rebates.
Mallinckrodt also said that the Medicaid
matter had been factored into reaching the
agreement for the settlement and that it was
now engaging with the plaintiff parties to
address the impact of the court’s decision.CAPSTONE SCRAPS US$340m TLCAPSTONE LOGISTICS has withdrawn a US$340m
Term Loan B from the syndicated
institutional market that was slated to
RElNANCEûTHEûCOMPANYSûDEBT
The withdrawn transaction is one of
roughly a dozen to be pulled from the loan
market over the last month, as investors
shied away from deals due to thecoronavirus that has halted economic
growth.
Capstone, along with several other
borrowers, had sought to capitalise on
favourable credit conditions on offer at
the start of the year before the spread of
the virus was elevated to a pandemic
level.
With investors seeking greater
compensation for their participation in
deals amid a riskier economic backdrop,
companies have chosen to withdraw deals to
RElNANCEûDEBTûANDûAWAITûAûMOREûBORROWER
friendly environment.
On March 9, Capstone persisted with its
transaction, but cut the deal to US$340m
FROMû53MûANDûTHEûMATURITYûTOûlVEûANDû
a half years from seven.
The company also implemented a 1%
,IBORûmOOR ûAMENDEDûTHEû/)$ûTOûûFROMû
99.5 and set the margin at 475bp over Libor
from a previously guided 450bp–475bp.
After a lukewarm response from investors
and an overall reluctance from the
marketplace to digest new leveraged loans,
Capstone opted to pull the deal.
Credit Suisse was leading the transaction.ARAMARK MOVES TO DRAWCatering company ARAMARK SERVICES
intends to borrow approximately
US$230m under a revolving credit facility
DUEûTOûTHEûUNCERTAINTYûINûGLOBALûlNANCIALû
markets brought on by the coronavirus
outbreak.
The US$230m represents all that remains
under a US$1bn RCF signed in March 2017.
Proceeds will increase the company’s cash
POSITIONûANDûPRESERVEûlNANCIALûmEXIBILITY
4HEûCOMPANYûHASûNOûSIGNIlCANTûDEBTû
maturities due until 2023.
By drawing on the outstanding amounts
of its RCF, the company will increase its cash
availability to US$1.3bn.
Aramark raised a US$900m term loan B in
$ECEMBERûTHATûWASûUSEDûTOûRElNANCEûDEBT
#ORPORATEûRATINGSûAREû"A"" ûANDûTHEû
lRST
LIENû4,"ûISûRATEDû"A"""nHERBALIFE AMENDSNutritional supplement maker HERBALIFE has
amended its Term Loan A and revolving
credit facility.Direct lenders hold on to portfolios as
virus fears grow
EUROPE Secondary market is still in its infancyWhile fears over the coronavirus outbreak grow,
direct lenders have limited choice but to hold
on to their illiquid portfolios as the exit routes in
mid-market lending remain limited.
Unlike the syndicated loan market, which
has seen a pick-up in secondary trading activity
following the outbreak of the virus, loan transfers
in direct lending are still in an infancy stage.
Direct lenders tend to hold loans until maturity.
“Most direct lending deals are on a bilateral
basis. It is a take-and-hold industry and offers a
limited opportunity to trade out a position that
you are in,” said Floris Hovingh, partner and
head of alternative capital solutions at Deloitte.
“Selling direct lending loans mid-way in their
life would get lot of questions from the potential
buyers.”
A meaningful secondary market was just
beginning to develop for the sale and purchase
of mid-market direct lending loans, however
market volatility triggered by the rapid spread
of the virus has made any trade very difficult
because of a massive gap between bid and ask
spreads.
“It’s very hard to sell anything now as it will
be very depressed in terms of valuation. No one
would sell at a deep discount,” said Hovingh,adding direct lenders need to reassess their
portfolio to understand which companies they
might need to support in difficult times.OPAQUE MARKET
Since the secondary market is still in its infancy,
any talks on loan transfers are all in private.
“No one would sound out loud about selling
their loans,” a head of a direct lender said.
In addition, the time and efforts on due
diligence spent on a secondary trade are similar
to a primary deal.
European direct lender Kartesia acquired
an outstanding unitranche facility in Spanish
dental services provider Vitaldent in 2018 from
another lender but only after holding rounds of
conversations with majority owner JB Capital
and following the improvement in trading
performance.
It was a profitable trade for Kartesia, sources
said, which exited the position in less than a
year when Advent International agreed to buy
Vitaldent in June 2019.GREATER ACCESS
Despite being hard for direct lenders to trade
out of their loan positions, they do have agreat amount of access to portfolio companies
compared to a number of larger borrowers in the
syndicated loan market.
“Direct lenders often have a majority vote in
the loans with good management access, which
improves communication and decision-making.
They are also senior secured lenders to be the
first in line to get the collateral if loans turn
sour,” said Hovingh.
To most direct lenders, collaboration is the key
once portfolio companies start to underperform.
“Identifying the problems and collaborating
with the private equity sponsors is the best
way to get your money back. You don’t want to
threaten the sponsors and burn any bridges as
they are less likely to support the company,” said
Nicole Downer, managing partner at MV Credit.
Downer added that options to help
companies include converting cash interest
into accrued interest payments to boost firms’
liquidity.
“Giving space to breathe is important in a
difficult time,” said Downer. “This approach
has proven successful in MV Credit’s two-
decade investment experience and we
continue to stand by it.”
Prudence Ho, Kerstin Kubanek9 IFR Loans 2325 p 55 - XX.indd 70 20 / 03 / 2020 19 : 00 : 40