Banks have rejiggered the deal that will finance Brookfield Business Partners’ buyout of Johnson Controls’ Power Solutions business, but expect to price it at lower yields after improving bond covenants to address investors’ complaints.
The deal will now be financed with a larger portion of loans after the US dollar secured bond was halved to US$1bn.
By sweetening the bondholder protections, the issuer was able to agree a lower cost for the borrowing, investors told IFR.
The US$1bn seven-year non-call three senior secured bond is now expected to price at a yield of 6.25%, which is tighter than initial price talk of 6.5%-6.75% area and almost 100bp inside whispers of low 7% area.
The borrower will instead increase the size of the term loan by US$1bn to US$4.2bn. The loan is expected to price at 350bp over Libor, which is the tight end of 350bp-375bp talk. It was initially marketed with guidance of around 400bp-425bp over Libor with a 0% floor and a discount of 98.5.
The size of the US$1.95bn eight-year non-call three unsecured bond remains the same, but it is also expected to price at lower yields than first thought after banks updated guidance on Thursday to 8.5%. That tranche was initially whispered at 9%, before talk was revised to 8.75%-9%.
The euro-denominated seven-year non-call three euro senior secured note is expected to be at least €660m and to price at a yield of 4.375%. It was first whispered at low 5%, before talk was announced at 4.5%-4.75%.
The lead bookrunners on the bond financing - Barclays, Credit Suisse and JP Morgan - conceded on a number of covenants on Wednesday that had been described by some analysts as some of the worst ever seen.
The deal - the largest leveraged buyout financing since the Refinitiv transaction last year - was heard to be multiple times oversubscribed before the covenant changes were made. Refinitiv is the owner of IFR.
The bond offering is expected to price on Friday.
