By Leela Parker Deo and Kristen Haunss
NEW YORK, July 31 (Reuters) - Antares Capital is in the
market with $13.9 billion of senior secured credit facilities
backing its sale to Canada Pension Plan Investment Board (CPPIB)
from General Electric (NYSE:GE) Capital Corp, which include a jumbo $10.7
billion asset-backed loan.
The financing, which will also help fund the middle market
private equity lender's future growth, is backed by Antares'
portfolio of term loans and revolving credits to U.S. middle
market companies.
The secured financing stands out due to its size, and its
asset-backed structure, which allows Antares to diversify its
funding sources in the future by issuing a range of debt
instruments via the securitization and unsecured debt markets,
according to Fitch Ratings.
"It is easy to get secured financing quickly from banks,"
said Meghan Neenan, a senior director at Fitch, adding that the
execution makes sense in terms of economics and efficiency.
The structure of the deal resembles a warehouse facility
used for Collateralized Loan Obligation (CLO) funds to gather
assets, Neenan said. The ratings agency expects the deal to be
"termed out" by issuing a series of CLO funds over time.
Middle market lenders, which include specialty finance
companies and Business Development Companies (BDCs), often issue
CLOs as one of several vehicles they use to fund investments in
portfolio companies.
Antares previously used CLOs to fund investments but stopped
after its acquisition by GE Capital due to GE's lower funding
costs, Neenan said.
CPPIB's $12 billion acquisition of Chicago-based Antares
vaults Canada's largest pension fund into the top tier of U.S.
middle market lenders and marks GE Capital's exit as the
dominant player in that space.
General Electric Co announced plans to divest the majority
of GE Capital's assets in April, including the Antares sponsor
finance business and its U.S. commercial lending and leasing
unit, as it seeks to minimize exposure to its finance arm amid
increased regulatory scrutiny.
Credit Suisse (SIX:CSGN) declined to comment and CPPIB did not
immediately respond to a request for comment.
In market
Underwriters Credit Suisse, Deutsche Bank (XETRA:DBKGn) and Citigroup (NYSE:C) are
currently syndicating the deal, which is targeting investment
grade lenders due to Antares' BBB rating from Fitch.
Sumitomo Mitsui Banking Corp and Scotiabank have also signed
on as co-arrangers and co-documentation agents, sources said.
The financing launched July 27 with commitments due by August
12.
The asset-backed loan is secured by Antares' portfolio of
first-lien middle market term loans and the holding company loan
is backed by Antares' portfolio of revolving credit loans,
sources said.
The $10.7 billion, seven-year asset-backed facility includes
a $3 billion asset-backed revolving credit and a $7.7 billion
asset-backed term loan. The asset-backed revolver pays 225bp
over Libor when drawn and 50bp when undrawn, sources said, and
is expected to be undrawn at closing. The $7.7 billion term loan
pays 225bp over Libor.
"It's a great piece of paper for a bank buyer because the
loan is secured by a highly diversified portfolio of first-lien
loans," a banking source said.
The $7.7 billion term loan backs Antares' existing portfolio
of term loans and the revolving credit can be drawn to help fund
new term loans in the future, the sources said.
The financing includes a $3.2 billion, five-year credit
facility at the holding company level, split between a $1.2
billion term loan A and a $2 billion revolving credit.
Pricing on the holding company loan is tied to a
ratings-based grid. Pricing on both tranches is 125bp over Libor
at the BBB rating level, higher at lower rating levels, said
sources. The $1.2 billion TLA will amortize at 5 percent in the
first year, 7.5 percent in the second, 10 percent in the third
and 12.5 percent in the last two years.
The $2 billion holding company revolving credit will fund
revolver draws by Antares portfolio companies, sources said.
I-grade rating
Fitch Ratings assigned a BBB expected long-term issuer
default rating and expected secured debt rating to Antares
Holdings (US LP) on July 27 with a stable outlook.
"The expected ratings reflect Antares' strong middle market
franchise and expansive sponsor relationships, which provide
access to ample dealflow," Fitch analysts said.
The ratings reflect Fitch's belief that Antares has a
lower-risk portfolio profile than other middle market lenders,
due to its focus on senior lending positions, lower portfolio
yields than lenders making riskier loans, low portfolio
concentrations, minimal exposure to equity investments and
strong asset quality.
Fitch said that Antares' rating constraints include higher
leverage than its peers, a fully secured and relatively
undiversified funding profile, potential liquidity and leverage
impacts from portfolio companies drawing on revolving credits,
and the execution risk associated with the separation of Antares
from GE Capital.
The ratings also consider currently aggressive underwriting
conditions in the middle market lending space and the potential
for increased risk appetite as Antares expands its unitranche
lending offering, said Fitch.
CPPIB is contributing $3.85 billion in cash toward the
Antares acquisition, which Fitch said is a sizeable initial
equity investment and evidence of CPPIB's long-term strategic
plans for growth.
(Editing By Tessa Walsh and Jon Methven)