Petco sets term loan sizes and breaks for trading; 1-800 Contacts frees up above OID

By Sara Rosenberg

New York, Jan. 15 – Petco Animal Supplies Inc. finalized tranche sizes on its term loan B-1 and term loan B-2, and then the loans began trading on Friday above their original issue discounts. 1-800 Contacts Inc.’s (CNT Holdings III Corp.) credit facility broke too.

Petco hits secondary

Petco’s credit facility began trading on Friday, with the $1,825,000,000 seven-year covenant-light senior secured first-lien term loan B-1 (B1/B) quoted at 98 3/8 bid, 98¾ offered and the $700 million seven-year covenant-light senior secured first-lien term loan B-2 (B1/B) quoted at 98 5/8 bid, 99 1/8 offered, according to a trader.

Pricing on the term loan B-1 is Libor plus 475 basis points with a 1% Libor floor, and it was sold at an original issue discount of 98. The tranche has 101 soft call protection for one year.

The term loan B-2 is priced at Libor plus 500 bps with no Libor floor and was issued at a discount of 98. All other terms of the term loan B-1 are identical to the term loan B.

Along with the term loan debt, the company is getting a $500 million asset-based revolver.

Citigroup Global Markets Inc., Barclays, RBC Capital Markets LLC, Credit Suisse Securities (USA) LLC, Nomura and Macquarie Capital (USA) Inc. are the leading the debt for the San Diego-based specialty retailer of pet food, supplies and services.

Petco being acquired

Proceeds from Petco’s credit facility will be used to help fund its buyout by CVC Capital Partners and Canada Pension Plan Investment Board from TPG and Leonard Green & Partners for roughly $4.6 billion, which is expected to close late this month, subject to customary conditions.

The other day, pricing on the term loan B-1 was lifted from Libor plus 450 bps, the discount widened from 98 and the call protection was extended from six months, and a minimum term B-2 was added to the capital structure as the term B-1 was downsized from $2.5 billion, with final tranche sizes emerging on Friday morning.

The extra $25 million of term loan funds being raised will cover the wider issue price, a source added.

Also during syndication, the term loan accordion was reduced to $300 million from $500 million, with the unlimited amount unchanged as subject to 4.5 times first-lien net leverage for pari passu debt and closing date total net leverage in the case of junior secured or unsecured debt, with 50 bps MFN. The ABL accordion was trimmed $100 million from $250 million.

Additionally, the excess cash flow sweep had been changed to 50% of excess cash flow with step-downs to 25% at senior secured first-lien net leverage of 3.5 times, versus 4 times originally, and to 0% at senior secured first-lien net leverage of 3 times, versus 3.5 times originally.

1-800 starts trading

1-800 Contacts’ credit facility also emerged in the secondary market, with the $500 million seven-year first-lien term loan quoted at 99¼ bid, 99 7/8 offered, a trader said.

Pricing on the term loan is Libor plus 425 bps with a step-down to Libor plus 400 bps at 3.5 times net first-lien leverage and a 1% Libor floor. The debt was sold at an original issue discount of 99 and has 101 soft call protection for one year.

Recently, the spread on the loan was cut from talk of Libor plus 450 bps to 475 bps, the step-down was added, the discount firmed at the tight end of the 98.5 to 99 talk, and the call protection was revised from six months.

The company’s $580 million credit facility (B1/B) also includes an $80 million five-year revolver.

Credit Suisse Securities (USA) LLC, Barclays and Deutsche Bank Securities Inc. are leading the deal that will be used to help fund AEA Investors LP’s acquisition of a majority interest in the company from Thomas H. Lee Partners LP, who will remain a significant shareholder in the company.

1-800 Contacts is a Draper, Utah-based retailer of contact lenses.

Zayo closes

In other news, Zayo Group LLC completed its $400 million covenant-light term loan B-2 (Ba2) due May 6, 2021, according to a news release.

Pricing on the term loan is Libor plus 350 bps with a 1% Libor floor, and it was sold at an original issue discount of 99. The debt has 101 soft call protection for six months.

During syndication, the spread on the loan was reduced from Libor plus 375 bps.

Morgan Stanley Senior Funding Inc. led the term loan that was used to fund previously announced acquisitions.

Zayo is a Boulder, Colo.-based provider of fiber-based bandwidth infrastructure and network-neutral colocation and interconnection services.

Microsemi wraps acquisition

Microsemi Corp. closed on its acquisition of PMC-Sierra Inc. for $9.22 in cash and 0.0771 of a share of Microsemi common stock for each share of PMC common stock, a news release said. The transaction is valued at about $2.5 billion.

To help fund the transaction, Microsemi got a new $2.45 billion senior secured credit facility (Ba3/BB-) that includes a $450 million five-year term loan A and a $300 million five-year revolver, both priced at Libor plus 250 bps with no floor, and a $1.7 billion seven-year covenant-light term loan B.

Pricing on the term loan B is Libor plus 450 bps with a 0.75% Libor floor, and it was sold at an original issue discount of 97. This tranche has 101 soft call protection for one year.

Microsemi lead banks

Morgan Stanley Senior Funding Inc., the Bank of Tokyo-Mitsubishi UFJ Ltd. and Deutsche Bank Securities Inc. led Microsemi’s credit facility.

During syndication, the term loan B was upsized from $1,425,000,000, pricing was raised from talk of Libor plus 375 bps to 400 bps, the discount was changed from guidance of 98 to 98.5, and the call protection was extended from six months.

Also, in syndication, the term loan A was downsized from $650 million, the revolver was cut from $350 million, and pricing on these tranches finalized at the high end of the Libor plus 225 bps to 250 bps talk.

The $25 million increase to the total amount of funded bank debt was used to pay for the wider original issue discount.

Aliso Viejo, Calif.-based Microsemi and Sunnyvale, Calif.-based PMC are semiconductor companies.

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