Actionable Ideas for Companies and Sponsors

Dividend Recaps with Portability

The strength of the leveraged loan market has led to increasingly issuer-friendly structures, including those that support dividend transactions as well as rare but sponsor-friendly portability features in credit facilities. Portability is especially advantageous to private equity sponsors as it allows them to sell a portfolio company while retaining its existing capital structure; decreasing transaction costs and facilitating sale processes. With the recent strength in the market, issuers can couple portability with dividend transactions, allowing sponsors to take a dividend ahead of a potential sale and reduce market risk by meeting certain documentation conditions.

Jefferies recently completed a portable dividend recap transaction for Charter NEX, a specialty films producer owned by Leonard Green and Oak Hill. The $1.6 billion first lien term loan was priced at L+425 / 0.75% Floor / 99 OID. Pro forma leverage for this transaction increased from 4.0x / 4.9x to 5.5x / 7.2x. Similarly, this portability feature also played out in Jefferies’ deal for Flexera, supporting Thoma Bravo’s purchase of a majority stake in the Company. Jefferies recently completed a $285 million fungible incremental first lien term loan that supplemented the existing portable first lien term loan as part of the sale transaction.