Cerence ups spread on $425 million term B to Libor plus 525 bps

By Sara Rosenberg

New York, Sept. 24 – Cerence Inc. raised pricing on its $425 million first-lien term loan B to Libor plus 525 basis points from revised talk in the range of Libor plus 425 bps to 450 bps and initial talk of Libor plus 375 bps, according to a market source.

In addition, the Libor floor on the term loan was increased to 1% from 0%, and the original issue discount widened to 98 from revised talk of 99 and initial talk in the range of 99 to 99.5, the source said.

Also, the maturity of the term loan was shortened to five years from seven years, amortization was increased to 2.5% in years one and two, 5% in years three and four and 7.5% onwards from 1% per annum, and MFN was changed to 50 bps for life with carve-outs removed from 75 bps with a six month sunset.

The excess cash flow sweep was revised to 75%, stepping down to 50%, 25% and 0% at 2.75x, 2.25x and 1.75x first-lien net leverage, from 50%, stepping down to 25% and 0% at 2.75x and 2.25x first-lien net leverage, and carve-outs were removed from the definition.

The asset sale sweep saw the removal of step-downs versus the initial proposal of 100%, stepping down to 50% and 25% at 2.75x and 2.25x first-lien net leverage.

Incremental free and clear was changed to the greater of $75 million and 0.75x LTM EBITDA from the greater of $100 million and 1x LTM EBITDA, the first-lien unlimited is now subject to 0.50x inside closing date first-lien net leverage instead of subject to closing date first-lien net leverage, the junior unlimited is now subject to 0.25x inside closing date senior secured net leverage instead of unlimited subject to 0.75x outside closing date senior secured net leverage, the unsecured unlimited in now subject to 0.25x inside closing date total net leverage instead of unlimited subject to closing date total net leverage and/or a 2x interest coverage test, and the “no worse” prongs were removed.

Under available amount, the company removed the starter basket and use for restricted payments and restricted debt payments are subject to a total net leverage test, revised from a starter basket equal to the greater of $30 million and 0.3x EBITDA, the source continued.

Restricted debt payments saw the reduction of the general basket to $15 million with no grower from the greater of $25 million and 0.25x LTM EBITDA, and the reduction of the ratio restricted debt payments to 2x total net leverage from unlimited subject to 2.75x total net leverage.

The general debt/liens basket was modified to the greater of $20 million and 0.20x LTM EBITDA from the greater of $50 million and 0.5x LTM EBITDA, the non-guarantor debt basket was reduced to the greater of $15 million and 0.15x LTM EBITDA from the greater of $50 million and 0.5x LTM EBITDA, and ratio debt as per the revised incremental from ratio debt as per the incremental.

Regarding investments, the general investments basket was reduced to the greater of $20 million and 0.2x LTM EBITDA from the greater of $50 million and 0.5x LTM EBITDA, and the ratio investments were changed to 2.25x total net leverage with a cap on investments in non-guarantor subsidiaries at $15 million and a cap on investments in unrestricted subsidiaries at $15 million from unlimited investments subject to 3x total net leverage.

Restricted payments saw the general basket reduced to $15 million with no grower from the greater of $25 million and 0.25x LTM EBITDA, the ratio restricted payments reduced to 2x total net leverage from unlimited restricted payments subject to 2.75x total net leverage, the market capitalization basket removed and the debt basket removed.

Under EBITDA, the cap was reduced to 15% and the look-forward was limited to 12 months from a 25% cap for anticipated cost savings, operating expense reductions and synergies, and a 36-month look-forward.

The company’s $500 million of credit facilities (B2/B) also include a $75 million revolver.

Barclays is the left lead bookrunner on the deal.

Commitments are due at 5 p.m. ET on Wednesday, the source added.

Proceeds will be used to support the spinoff of Nuance Communications Inc.’s automotive software business segment into a new, independent, publicly traded company named Cerence.

Cerence is a Burlington, Mass.-based builder or automotive cognitive assistance solutions to power natural and intuitive interactions between automobiles, drivers and passengers, and the broader digital world.

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