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Market Questions Fate Of Quintiles Buyout Financing

Market players were buzzing last week over the status of the financing for the $1.7 billion buyout of Quintiles Transnational Corp. by Pharma Services Holding. The originally proposed $390 million bank deal included in the financing package was launched in early June and is still encountering turbulence on the road to completion, according to buysiders and bankers. "The deal is hung out there and [lead bank Citigroup] is trying to figure out if they can price guys in," said a banker familiar with the deal. "That [deal] has struggled and kind of died away," an investor added, stating that the facility is one of a few, if not the only credit that has not fared well in the current issuer-friendly environment. He said Citi was "re-tooling" the credit to make it more appealing to the buyside, but the exact status of the credit could not be confirmed and Citi bankers declined to comment on the situation. James Bierman, cfo of Quintiles, Greg Connors, senior v.p. of investor relations, and a spokeswoman did not return repeated calls.

But juicing up terms may not be enough to fill the deal. "Is it pricable?" the banker wondered. "It's not an easy story," he added, noting that investors would have liked more structural tweaks to the credit agreement, such as increased amortization. Citi held an investor conference call in late June to help assuage buyside concerns regarding the company's PharmaBio Development group-an arm of the company that resembles a venture capital investment firm within the firm (LMW, 6/23). But investors still felt uneasy.

Pricing was too aggressive and the structure of the credit was too loose, another investor noted. Citi had actually tightened pricing ahead of the original bank meeting, the banker claimed. Last reported pricing on the credit was LIBOR plus 3 1/4% for the $315 million term loan and LIBOR plus 3% for the $75 million revolver (LMW, 6/23). As of late last month, the revolver was said to be filled out and the "B" loan book was said to be building, but exact levels could not be confirmed.

The bank deal is also contingent on a $450 million notes deal that has yet to materialize, according to market players. A second banker familiar with the situation said Quintiles was still responding to comments from the Securities and Exchange Commission regarding submitted financials and that was why the deal was not out yet. The first banker also said the bond deal was waiting on some audited financials, adding that Citi decided to do the bank deal first because it was viewed as the tougher part of the debt package to complete.

The fate of the bank deal is still very unclear, the banker said. "I don't know if they'll pull it," he said. The loan market is still waiting to see what Citi will bring back to the table, he added. A tweaked deal may not emerge until after the bond deal is completed, the banker noted, stating that the bond portion could be increased. "[The] sponsor [may also be] re-cutting a deal with the seller," he speculated as another scenario. Pharma Services was created by Quintiles founder Dennis Gillings, and One Equity Partners-the private equity arm of Bank One (LMW, 4/21). One Equity was said to be contributing an equity commitment of $415.7 million to fund the deal, while $586 million of Durham, N.C.-based Quintiles cash was also set to be tapped.

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