ADT loan amendment may pave way for potential $2.65 billion of notes

By Sara Rosenberg

New York, March 12 – ADT Inc. (Prime Security Services Borrower LLC) held its lender call on Tuesday and released details on an amendment to its first-lien credit agreement that would facilitate a refinancing through the issuance of new notes, according to an 8-K filed with the Securities and Exchange Commission.

Tuesday evening, ADT said in a separate announcement that it is proposing to issue up to $2.65 billion of notes.

The company said it is considering $750 million each of first-priority senior secured notes due 2024 and of first-priority senior secured notes due 2026. Additionally, ADT said it may concurrently issue up to $1.15 billion senior unsecured notes due 2027.

Each series of notes may be issued in one or more tranches, according to the news release Tuesday evening.

ADT said it expects to launch the offerings the week of March 18, subject to market and other conditions.

Proceeds of the Rule 144A and Regulation S offering will be used to redeem or repurchase $1 billion of 9¼% second-priority senior notes due 2023 and to repay $500 million of term loans outstanding under the company’s credit agreement.

If completed, the refinancing would provide significant interest expense savings and extend the company’s maturity profile, the company said in its SEC filing said.

Under the proposed credit agreement amendment, ADT is asking to revise the first-lien net leverage ratio covenant to 4.6 times from 3.3 times and to change the permitted capacity for incremental loans and other first-lien debt to up to 3.2 times first-lien net leverage from up to 2.35 times.

Currently, the company’s first-lien net leverage is 2.8 times.

The amendment would also increase the dollar prong under the incremental to $1.65 billion, less any amounts already used under the dollar prong prior to the closing of the amendment, from $1.35 billion, under which there was no remaining capacity as of March 12.

Furthermore, the amendment would add a voluntary refresh prong to the incremental so that incremental capacity builds for voluntary prepayments of the term loan after the closing date of the amendment, except to the extent funded with the proceeds of long-term debt.

Regarding restricted payment capacity, the cumulative credit grower prong would be unchanged, except that the reset cumulative retained excess flow would be reset to $0 million and usage would be subject to 3.65 times total net leverage instead of 3.6 times.

Additionally, the post-initial public offering basket under restricted payments would be amended to $150 million per annum from 6% of IPO proceeds per annum, which is currently $85 million.

And, the scope of redemptions and prepayments of debt would be modified to be applicable to subordinated debt only from applicable to junior-lien, subordinated and unsecured debt.

Lastly, the amendment would consolidate the company’s identical $50 million revolver and $350 million revolver into one $400 million tranche.

Consents are due at noon ET on Friday and the amendment is targeted to close that day as well.

Revolver and term loan B lenders are being offered a 50 basis points amendment fee.

Barclays is the administrative agent on the credit facilities.

ADT is a Boca Raton, Fla.-based security services company.

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