Covetrus updates $1.53 billion term loan spread and OID talk

By Sara Rosenberg

New York, Sept. 19 – Covetrus Inc. (Corgi BidCo Inc.) set pricing on its $1.525 billion seven-year covenant-lite first-lien term loan (B1/B-) at SOFR plus 500 basis points, the high end of the SOFR plus 475 bps to 500 bps talk, according to a market source.

Also, the original issue discount talk on the term loan was changed to a range of 94 to 95 from a range of 95 to 96 and the 101 soft call protection was extended to one year from six months, the source said.

The term loan still has a 0.5% floor.

Regarding documentation, the company revised MFN to 50 bps with a 24-month sunset, extended the MFN to apply under cash capped incremental facility, and applies it to all pari passu debt and to debt maturing up to 24 months after the term loan.

Furthermore, the accordion was changed to the greater of $250 million and 75% EBITDA, and pari passu debt was revised to reduce the pari passu incremental debt ratio to 5.25x first-lien net leverage and remove the “no worse” prong entirely.

Business line exception was modified to permit the sale and restricted payment of Technology Business Line subject to 4.5x pro forma first-lien net leverage and 5.85x pro forma total net leverage, and to add restriction on transfers to unrestricted subsidiaries and affiliates of the sponsor or company, the source continued. For the avoidance of doubt, there is no ability to move the Tech Business into an unrestricted subsidiary unless it meets the tests above.

Asset sale was changed to remove all step-downs, reduce to 18 month the re-investment period and remove both exclusion baskets from asset dispositions.

The excess cash flow sweep was adjusted to add an additional step down to 25%, so there are step downs to 25% and 0% at 5x and 4.75x first-lien net leverage, respectively, and reduce the de minimis amount to the greater of $42 million and 15% of EBITDA.

Under other ratio debt, the junior lien and unsecured debt ratio was reduced to 7x total leverage or “no worse” for acquisitions and investments and the consolidated coverage ratio was increased to 2x or “no worse” for acquisitions and investments.

The general restricted payment basket was changed to remove the leverage excess proceeds prong clause, the available investments amount clause and the available restricted debt payments amount clause.

Unlimited investments were reduced to 6.5x senior secured net ratio, and the consolidated coverage ratio test and the “no worse” prongs were removed.

In addition, a 30% cap on cost savings and synergies was added to EBITDA cost savings and synergies and the look-forward was reduced to 24 months.

Other revisions included increasing the minimum consolidated coverage ratio to 2x or “no worse” for acquisitions and investments, removing the restricted payment debt basket, reducing the ratio liens basket to 5.25x first-lien net leverage and removing the “no worse” prong entirely, removing from available amount the prong of 100% of EBITDA less 150% of consolidated interest expense from builder, reducing the post-IPO restricted payment basket to the greater of 6x of gross proceeds and 6% of market capitalization, adding J. Crew and Chewy provisions, removing investments in joint ventures basket, and requiring quarterly lender calls.

Deutsche Bank Securities Inc., UBS Investment Bank, BMO Capital Markets, Mizuho Securities USA LLC, TD Securities (USA) LLC, Santander Bank and ING Capital LLC are the bookrunners on the deal, with Deutsche the left lead and administrative agent.

Recommitments are due at 5 p.m. ET on Tuesday, the source added.

The company is also getting a $350 million privately placed second-lien term loan.

In addition, based on the commitment letter, the company is expected to get a $300 million five-year revolving credit facility.

Proceeds will be used to help fund the buyout of the company by Clayton, Dubilier & Rice and TPG Capital for $21.00 per share in cash, representing an enterprise value of about $4 billion.

Clayton, Dubilier & Rice currently owns around 24% of the company’s outstanding shares of common stock.

Other funds for the transaction will come from equity.

Closing is expected this year, subject to Covetrus shareholder approval and other customary conditions.

Covetrus is a Portland, Me.-based animal-health technology and services company.

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