ION Trading’s US$2.1bn-equivalent cross-border financing to purchase UK trading software company Fidessa was emblematic of a year in which looser regulations allowed issuers to push the market in terms of leverage and add-backs.
UBS was sole arranger and bookrunner on the deal, and the bank created tension between US and European investors in order to leverage strong pricing, especially for a deal in which the sponsor was only putting up an 8.5% equity cheque (the average equity cheque on leveraged buyouts for the first nine months of 2018 was 38.3%). UBS underwrote and held onto a US$230m nine-month term loan to the ION holding company that was used to provide the equity cheque.
The deal was launched as a US$2.1bn loan with the intent of adding euros, and that is exactly what the bank did, with a little back and forth.
“We tweaked the tranche sizes multiple times in the syndication depending on the price, etc, to truly optimise the pricing – to the point where we probably couldn’t do it any further,” said Brendan Dillon, co-head of leveraged finance at UBS.
The loan comprised a US$1.32bn term loan that was priced at 400bp over Libor versus 375bp–400bp at launch and a €670m piece that was priced at 325bp over Euribor against guidance of 350bp.
2018 was the year that federal regulators relaxed leveraged lending guidelines, paving the way for deals with high leverage. Add-backs were a big part of that story, as companies looked to adjust leverage numbers.
The ION deal included plenty of add-backs – enough to account for 52.4% of the deal, which cut adjusted leverage to 5.9 times from unadjusted leverage of 8.9 times. This was well above the average deal in 2018, which had add-backs of 9.3%, according to UBS data.
“I actually think it was probably the most aggressive structure I’ve seen all year,” said Francisco Pinto-Leite, co-head of leveraged finance at UBS. “Obviously, we have high confidence in this client to achieve the synergies and the add-backs.”
UBS took a very hands-on approach to this deal from even before the announcement, when the bank suggested pursuing an amendment to ION’s credit agreement that would permit the Fidessa purchase. In order to disguise the reason for the amendment, the bank amended the debt across the company, citing a desire to bring the debt up to market standards. This ended up saving the company US$40m in financing fees.
The bank also worked to de-risk the deal as soon as possible and within one week of signing had US$270m of commitments. This number jumped to 52% of the necessary commitments within 14 days of signing, and the entire deal was committed for within 23 days.