Refinitiv lives: carve-out begins life as debt market darling

IFR 2252 22 September to 28 September 2018
8 min read
Tessa Walsh

High secondary trading levels on the US$13.5bn loan and bond financing backing Blackstone’s buyout of a 55% stake in Refinitiv, Thomson Reuters’ financial data and technology division, underscored investors’ enthusiasm for the massive deal after a surprisingly smooth execution across six tranches of debt.

The markets’ vote of confidence in the biggest buyout financing since the financial crisis exceeded Blackstone’s expectations and shows that the leveraged finance markets on both sides of the Atlantic are in fine fettle despite a shaky summer.

The rousing response allowed Blackstone to cut pricing on the loans and bonds, saving Refinitiv more than US$92m in annual interest payments relative to what was expected when the financing launched.

“We are grateful to have received such a strong vote of confidence in the prospects for Refinitiv from a broad set of institutional investors who know the business well,” said Martin Brand, a senior managing director at Blackstone and the person overseeing the deal for the private equity giant. “This deal benefited from significant excess demand, allowing us to price well inside initial price talk.”

That US$92m could be invested into the business, provide some flexibility on projected cost savings, or Blackstone (and the deal’s other sponsors) may simply take the money out of the business for themselves.

They certainly have the ability to do that: Scott Josefsberg, an analyst at credit research firm Covenant Review, said the deal’s loose covenants could allow the private equity outfit and its co-sponsors to pay themselves a dividend of up to US$2bn immediately after the buyout closes.

Josefsberg said that was because of terms governing restricted payments baskets on the bonds. “It is normal for baskets to be available immediately, but the large size of these baskets is unusual,” Josefsberg told IFR.

The most enthusiastic demand came from loan market investors - those in the US in particular - allowing Blackstone to recut the deal by upping the size of the loans, reducing the bonds - and cutting the yield on both.

“The demand we have seen during this debt sale has been phenomenal and demonstrates that the market believes in Refinitiv’s strategy and has confidence in our ability to deliver,” said David Craig, who currently heads F&R and will be CEO of Refinitiv.

The US$6.5bn seven-year Term Loan B (originally US$5.5bn) broke for trading at 100.125-100.5 on Tuesday and the US$2.75bn-equivalent euro-denominated Term Loan B (originally US$2.5bn) broke at 100.125-101. Investors who bought the paper with an OID of 99.75, compared with 99-99.5 guidance, were already in the money.

The loan pricing also beat guidance, with the dollar loan edging inside the euro loan after US investors joined the deal in droves.

The dollar loan priced at 375bp over Libor, inside guidance of 400bp-425bp. It has a 25bp step-down at 3.75 times net first-lien leverage and no Libor floor.

The euro loan priced at 400bp over Euribor, compared with original guidance of 425bp, with the same step-down and a 0% Euribor floor. Both loans have six months of soft call protection at 101 and the facility amortises at 1% a year.

The price action in the bond market was similarly impressive, with the secured bonds up by a point from a par pricing on the day trading began, and the unsecured notes up by half a point.

The US market did the heavy lifting on the loans and bonds as the European book was slower to build. European investors tried to hold out for additional concessions, emboldened by a series of successes over the summer, but caved as the momentum from US investors built, sources said.

In a surprising twist, Blackstone has also joined the loan as a lender, according to the loan credit agreement.

Refinitiv’s US$1.25bn senior secured bond priced at 6.25%, compared with guidance of low 7% area, while an €860m senior secured bond priced at 4.5%, compared with 5% area. Both bonds mature in May 2026.

US$1.575bn of unsecured bonds priced at 8.25%, compared with initial talk in the low 9% area, and €365m of unsecured bonds priced at 6.875%, compared with talk of around 7%. The bonds mature in November 2026.

The loans are rated B2/B/BB, while the bonds are rated B2/B/BB+ (secured tranches) and Caa2/B-/B+ (unsecured).

The repricing and rejigging between the loans and bonds in the debt package will result in annual interest payments of US$826m, according to people involved in the deal. Refinitiv had been on the hook for US$919m at the original deal terms - putting the annual saving at over US$92m.

The debt financing also includes US$1bn of preferred equity, which comes with a 14.5% payment-in-kind coupon.

The deal also includes a US$750m revolving credit facility.


The strong finish to the deal, which has been hanging over the debt markets since it was underwritten in January, surprised many market participants, who saw it as a non-standard LBO with aggressive documents and punchy Ebitda adjustments, and which relies heavily on cost-cutting for deleveraging.

Refinitiv’s documentation was slammed by Covenant Review, which urged investors to push back against what it described as some of the weakest investor protections seen since the financial crisis. The credit research firm said that the deal has defective sponsor-style covenants riddled with flaws and loopholes that reflect the worst excesses of covenant erosion.

Investors might have had sympathy for that view, but the size of the financing and its potential liquidity made it a “must do” deal for investors seeking to deploy capital. Many opted to make smaller commitments rather than pass entirely as technical factors overwhelmed credit concerns, sources said.

Carve-outs of new businesses from parent companies have proved to be some of the most profitable deals that private equity firms have ever done, and many investors felt that they simply had to be on the benchmark deal.

“It’s definitely a stamp of where the market is - and how it’s grown - that you can do US$8bn for a Single B credit. It speaks to the growth of the loan product in the institutional investor world,” a person familiar with the deal said.


Refinitiv’s well-flagged financing had allowed investors to reserve capital and had a clear run at the market after the summer. A cautious syndication strategy paid off as the US$5.5bn unsecured bond bridge was sold in June and the debt was premarketed in order to find firm anchor orders.

Many large institutional investors use Refinitiv’s products, although their support was not linked to their use of such products, in contrast to January 2018 when banks were seeking to be mandated as underwriters.

“They [investors] recognise our position - and potential - as a market leader in news, data, transactions, wealth and risk management. They also recognise the value of our open platforms in connecting a thriving global financial community,” Craig said.

JP Morgan is sole global coordinator on the bonds and Bank of America Merrill Lynch is lead left on the loans. The acquisition closes on October 1, after which the Financial and Risk business, which includes IFR, will be renamed Refinitiv.

David Craig, president of Financial and Risk, Thomson Reuters