GenTek Heralds Return Of Midmarket LBO
GenTek deal is not covenant-lite, in contrast to yesterday's LBOs.
October 1, 2009
A bank consortium led by Goldman Sachs has arranged a $330 million credit facility for American Securities’ acquisition of GenTek, and in the process of doing so, heralded in the return of the midmarket leveraged buyout.
The proceeds from most of the bank loan deals this year have gone to repay or refinance existing debt rather than to fund acquisitions.
The GenTek credit facility includes a $300 million term loan that matures in 2014 and a $30 million revolver. Price talk on the term loan is at Libor plus 475 bps, with an OID yet to be determined, while talk on the revolver is at Libor plus 450 bps. Both loans will include a 2.5% Libor floor. The revolver will also carry an unused fee of 75 bps.
And unlike the LBOs of a few years ago, this deal will not be covenant-lite. In fact, the commitment letter between American Securities and GenTek sets a 2.25-to-1 maximum leverage ratio for the latest 12-month period, as well as an unspecified minimum interest coverage ratio.
It couldn’t be determined when the banks would begin marketing the credit facility. A Goldman spokeswoman declined to comment. KeyBank and GE are also involved in the deal.
New York-based private equity firm American Securities is buying New Jersey-based GenTek for approximately $673 million (see related story).
GenTek, which makes valves for engines and chemicals used in water treatment, is rated "B+" by Standard & Poor’s and "B1" by Moody’s Investors Service. On Sept. 28, the same day the deal was announced, both rating agencies put GenTek on review.
GenTek already has an outstanding credit facility, but it couldn’t be determined how much is remaining. Moody’s says it believes the transaction, as announced, would trigger a change of control covenant in the existing credit facility. That may cause a need to refinance this facility, the rating agency added.
GenTek’s revenues in 2008 and 2007 were approximately $608 million.
There are approximately 16 deals in the loan pipeline, 10 more than there were two weeks ago, according to S&P Leveraged Commentary and Data. Meanwhile, spreads came down 61 bps to Libor plus 809 bps on Monday, while the average bid on the S&P/Loan Syndications and Trading Association Leveraged Loan 100 index increased by a little more than point to hit 87.9 that day.
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