North America Leveraged Loan: Cotiviti’s US$5bn term loan
Market homerun Energising a dormant market for new transactions after a start of the year focused on repricing credits, the US$5bn first-lien term loan backing the partial leveraged buyout of Cotiviti by KKR was the first sizeable LBO loan to tap the market in 2024.
KKR’s investment in the software provider for the healthcare industry was announced on February 14, making the private equity firm equal co-sponsor with Veritas Capital, not quite a year after buyout conversations between Veritas and prior suitor The Carlyle Group had concluded.
Widespread media scrutiny ignited by Carlyle’s attempt to buy the company meant KKR's plans quickly went public. However, a carefully planned and executed pre-marketing process of the loan resulted in KKR and Veritas securing more than US$5bn of demand ahead of the February 14 signing and the deal went from announcement to allocation in a week.
Starved for new money opportunities, the leveraged loan market received the deal with open arms. Leveraging multiple buyer bases, arrangers JP Morgan, Goldman Sachs, KKR and Veritas then priced one of the largest LBO loans of the year in the broadly syndicated market.
The seven-year financing comprised a US$4.25bn floating-rate portion combined with a US$750m fixed-rate part, the largest syndicated fixed-rate loan on record.
By incorporating a fixed-rate component, the deal was able to access buyers from the high-yield bond market while retaining the flexibility of a first-lien term loan. Fixed-rate term loans have been rare in the history of the leveraged loan market.
The company was selling US$5bn of funded paper, and if it "could create a separate tranche, we could create tension between the two", said Cade Thompson, global co-head of KKR debt capital markets.
Thanks to outsized demand, Cotiviti was able to price at appealing terms for a B2/B facility. Final terms came in at 325bp over SOFR with a 0% floor and an original issue discount of 99.5 cents on the dollar for the floating-rate component and at 7.625% at par for the fixed-rate part.
During syndication, the floating-rate portion was downsized from US$4.4bn while the fixed-rate size was increased from US$600m. The US$600m revolving credit facility remained unchanged.
JP Morgan was lead-left physical bookrunner for the floating-rate loan, as well as agent, while Goldman Sachs was lead-left physical bookrunner for the fixed-rate loan.
KKR Capital Markets was a physical bookrunner on both loans. Joint bookrunners for the transaction were Veritas Capital Markets, UBS, Barclays, Morgan Stanley and Stone Point.
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