A GROUP of debt arrangers on Friday (Mar 1) launched the sale of a US$1.9 billion second-lien loan, turning to a form of financing that has fallen out of favor to help fund the leveraged buyout of Truist Financial’s insurance business.
Second-lien loans have all but disappeared from the market for risky corporate borrowing in recent months as companies rushed to replace them with cheaper, more senior debt. The debt sale launched Friday – led by Stone Point Capital Markets – marks a stark departure from that trend.
The proposed US$1.9 billion broadly syndicated loan would be the biggest second-lien loan since at least 2022 and likely among the largest ever to support a leveraged buyout, according to Bloomberg-compiled data. Early discussions call for the loan to pay interest at 500 basis points over the Secured Overnight Financing Rate and price between 99.5 cents on the dollar and par, according to people familiar with the matter, who aren’t authorised to speak publicly.
Second-lien loans give lenders a junior claim to a borrower’s assets in the event of a bankruptcy or other corporate meltdown, making the debt inherently riskier and more expensive. The loans are so unfashionable that they’ve nearly vanished from the US leveraged loan index, Barclays strategists wrote in a note last month.
This second-lien loan would replace a US$1.9 billion unsecured bridge loan provided to support Clayton Dubilier & Rice and Stone Point’s acquisition of Truist’s insurance unit. The investment firms lined up a debt package totaling US$9 billion to underpin the deal, including a US$4 billion term loan, US$2.1 billion secured bridge loan and US$1.175 revolving credit facility, Bloomberg previously reported.
Commitments for the second-lien loan are due Mar 7 at 12 pm New York time, and the first-lien financing is expected to launch shortly afterward, they said. BLOOMBERG
