Refinitiv deal sets pulses racing

IFR 2250 8 September to 14 September 2018
8 min read
Americas, EMEA
Natalie Harrison

Refinitiv, Thomson Reuters’ Financial & Risk division, has fully launched its US$13.5bn-equivalent debt package, the largest buyout financing since the financial crisis and a major test of the leveraged finance markets on both sides of the Atlantic.

The launch has been eagerly awaited since the deal was underwritten in January and its size means that it has been priced to attract support in Europe and the US.

The financing backs private equity firm Blackstone’s purchase of a 55% stake in TR’s financial data and technology division (which includes IFR), which will be renamed Refinitiv when the acquisition closes (the expected close is October 1).

The debt package is divided into US$8bn of loans and US$5.5bn of high-yield bonds. Those debts, combined with separate payment-in-kind notes (with a 14.5% coupon), will result in annual interest payments of US$880m at current price talk. A separate US$750m revolving credit facility will also need servicing.

The seven-year Term Loan B comprises a US$5.5bn facility and a US$2.5bn-equivalent euro-denominated facility. Price guidance on the dollar loan is 400bp-425bp over Libor and the euro loan is offered at 425bp over Euribor.

“The banks had no choice but to price it attractively and it’ll be interesting to see how it goes,” a loan investor in London said.

The US$5.5bn-equivalent high-yield bond financing includes two US dollar tranches: a US$2bn 7.5-year non-call three senior secured first-lien bond, and a US$1.8bn eight-year non-call three senior unsecured bond. Initial price thoughts are low 7% area and low 9% area, respectively.

Two euro-denominated tranches are also on offer with the same maturities and seniority. They will be sized at US$1bn-equivalent for the 7.5NC3, and US$700m-equivalent for the 8NC3. Initial price thoughts are 5% area and 7% area, respectively.

The bonds are expected to price on September 18.

“It’s six different tranches of debt so it just needs to be managed properly,” a person familiar with the deal said.

“It’s pretty unique in buyouts to have secured bonds in a capital structure. You can buy a sizeable liquid bond as part of the buyout - the market hasn’t seen that before.”


The deal is being marketed with leverage of 4.25 times secured and 5.25 times unsecured, based on adjusted Ebitda of US$2.5bn, which includes US$650m of cost savings from the business’s reported Ebitda of US$1.9bn.

In order to buy the deal, investors will have to buy into the adjustments and cost savings forecast, the loan investor said. A portfolio manager in London said that he had calculated that leverage for the deal is “nearer six and seven times”.

John McClain, a portfolio manager at Diamond Hill Capital Management in New York, said the scale of the adjustments was off-putting.

“It’s very late cycle. I don’t really like it when you see a deal with this order of magnitude of projected cost savings as you really don’t know if and when they will be realised,” he said.

“It will be a bit of a test for the market given the size of the deal. But Blackstone and its partners have a good reputation and deep pockets.”

Moody’s forecasts pro-forma leverage of 7.6 times Ebitda on a GAAP basis and 7.2 times on a non-GAAP basis, while Fitch puts senior leverage at 6.1 times and total leverage at 7.5 times.

“Although the opportunity to remove US$650m in costs … would be a credit positive on its own, the cost savings are expected to be overwhelmed by interest expense,” said Fitch analyst Jack Kranefuss. “As such, Refinitiv will need growth to de-lever. However, we expect growth prospects over the short-term to be lacklustre due to the absence of focused investment in prior years.”

Senior managing director at Blackstone Martin Brand said at Tuesday’s bank meeting to pitch the loans that some US$250m of the cost cutting will be made in the three months after the acquisition closes, primarily through technology savings.

“Blackstone made a fair point that this deal has been in gestation for a long time and so they know almost down to the individual headcount what they’re going to do,” the portfolio manager said. “They said the bulk of cuts are going to be at the senior management level and not for example on the sales team.”

A lawyer specialising in leveraged finance in London said that sponsors have had a lot of third-party diligence done on projected cost savings to help boost their credibility, but added that investor resistance to adjustments was now a key battleground.

Brand said that Blackstone is the biggest fee payer on Wall Street, paying over US$1bn a year to investment banks, and is also the largest provider of capital to the hedge fund industry, which will help Refinitiv to gain further traction with financial institutions and grow the business.

David Craig, president of F&R and future CEO of Refinitiv, said at the loans meeting that much of the hard work was behind the company, as previous price reductions had now been absorbed and its restructuring was complete.

Refinitiv currently spends up to US$500m a year on capital expenditure, a number that Refinitiv executives said is expected to fall after the acquisition, helping to boost free cashflow.

“It is sometimes strange with these very large transactions as investors almost make the decision at the beginning that they’re going to do it,” the portfolio manager added. “Often when you drill down into the business though you realise it’s actually not an easy story.”

Analysts at Covenant Review, a credit research firm, were unimpressed with the high-yield bonds’ investor protections. “The notes are being marketed with extremely defective sponsor-style covenants riddled with flaws and loopholes that reflect the worst excesses of covenant erosion over the last two years,” research from the firm said (See Bonds section for more details).


The deal was underwritten in January, when markets were more aggressive and pricing was notably tighter.

For instance, a €2bn Term Loan B backing KKR’s carve-out of Upfield Foods’ (formerly known as Flora Food Group) priced in February at 350bp over Euribor. “KKR said recently that they felt they got lucky with the timing of that deal,” said another lawyer specialising in leveraged finance in London. “I’ve not seen an underwrite hold as long as Refinitiv, so it’ll be interesting.”

A banker on the deal in New York said banks are now underwriting at yields of 8%–9% with caps of 11%, but when these deals were done caps were more like 9%.

A person familiar with the deal said the underwrite contains a step up in pricing over time, however, providing banks with some cushion relative to where the market was in January.

The fact that other jumbo deals in euros this year have traded well – with both TDC’s €2.7bn Term Loan B and Techem’s €2.34bn Term Loan B quoted above par last week – provides some comfort.

Corporate family ratings are B3/B/BB, while secured ratings are B2/B/BB+. Unsecured ratings are Caaa2/B-/B+.

“One of the things you always watch for late in the cycle is an expansion in the size of issuance in the Triple C market,” said Brian Kennedy, co-portfolio manager of multisector institutional strategies and mutual funds at Loomis Sayles.

“That’s something we watch closely”.

Additional funding comes from US$3bn of cash equity from Blackstone and US$2.5bn of existing equity, based on the F&R unit’s US$20bn valuation, that will be rolled over.

Thomson Reuters Chief Executive Jim Smith speaks about the deal with Blackstone Group in Toronto
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