Trading volume was low on the break of MultiPlan's $425 million term loan in the secondary market. Dealers said most investors were happy with their allocations, choosing to hold on to the loan rather than sell it away in the secondary. "It was well-oversubscribed," said one trader. "People are sitting on their allocations. People like it." He added that the low amount of new issue in the primary market is also causing more investors to hold onto loans.
Goldman Sachs, Banc of America Securities and Morgan Stanley lead the term loan, which backs the financing of The Carlyle Group's leveraged buyout of the company. The loan broke just north of 101 and continued to trade at this level. The loan is priced at LIBOR plus 2%. The deal includes a $50 million revolver priced at LIBOR plus 2% and $225 million of 10 3/8% '10 bonds.
The term loan was increased by $25 million to $425 million, while the bond portion was decreased $25 million to $225 million. Richard Gerstein, executive v.p. and cfo of MultiPlan, said the company chose to increase the loan portion because of the more favorable interest rate compared to the rate on the bonds. He added that he thought it was a positive sign that investors chose to hold onto the loan rather than sell their allocations in the secondary.
Moody's Investors Service assigned a B2 rating to the credit facility and Caa1 to the subordinated notes. Carlyle is buying MultiPlan, a healthcare network, for $1.04 billion. The firm will fund the acquisition and the retirement of $116 million of MultiPlan's debt through a $383 million equity contribution as well as the proceeds from the debt financing, according to the ratings agency. Moody's ratings reflect the large increase in financial leverage -- the company's debt will increase to $650 million from $116 million at the close of the deal. Its debt to adjusted EBITDA for 12 months ended Dec. 31, 2005 will increase to over 6.3 times at the end of 2006, up from 1.6 times at the end of 2005, according to Moody's. Gerstein declined to comment on Moody's concerns of high leverage, except to say that the company has strong cash flow and EBITDA.