(Bloomberg) — Private lenders led by Blackstone Inc. sweetened terms on Guidehouse Inc.’s existing debt ahead of the company’s sale to Bain Capital Private Equity, a maneuver that successfully held off banks vying to finance the buyout.
Veritas Capital is selling Guidehouse, a consulting firm, to Bain in a deal valued at $5.3 billion. Such a change of control normally means existing debt is replaced, but Guidehouse’s private credit lenders fought to remain involved in the business instead, according to people familiar with the matter.
Blackstone and fellow lender HPS Investment Partners slashed the interest rate on Guidehouse’s $3.075 billion loan and $250 million revolver to dissuade Bain from refinancing the debt with banks, said the people, who asked not to be identified because the information is private. Cutting the rate to 5.5 percentage points over the Secured Overnight Financing Rate from 6.25 percentage points brought the facility closer to what banks offered, the people said.
To make their offer even more attractive, Blackstone and HPS agreed to purchase the stakes of other private credit managers who wanted to get out of the reshaped debt package, the people added.
Representatives for Bain, Blackstone and HPS declined to comment. Veritas and Guidehouse didn’t respond to requests for comment.
The concessions amount to another win for private credit lenders in their ongoing battle against bank underwriters. Competition between the two groups has intensified in recent months as better conditions in the broadly-syndicated loan and junk-bond markets have made bank financing more attractive. Private lenders are fighting back by pitching more flexible terms that banks can’t match.
Banks and direct lenders are again fighting over who will finance a buyout of Cotiviti, a skirmish revived after KKR & Co. made a bid for the business following a failed process by Carlyle earlier this year. Buyout funds are in talks with both banks and private credit funds for the $5 billion to $6 billion of debt, Bloomberg reported.
PIK Option
Guidehouse’s private lenders also added the option to pay 2 percentage points of interest with additional debt, called payment in-kind, for as long as two years, according to the people. In addition, they extended its maturity from 2028 to 2030.
In exchange for the concessions, the lenders were able to add new call protections, which promise a higher payoff should Guidehouse want to repay the loan early, said the people. Bain is also injecting new equity into the company as part of the buyout, the people said.
HPS will maintain a $500 million preferred equity investment in the business, according to the people. The instrument pays interest entirely in-kind at a rate of 13.75%, but was amended to step down to 12.75% if Guidehouse lowers its overall leverage over time, one of the people said.
The Guidehouse debt will stay in place through the change of control thanks to a provision called portability. LevFin Insights first reported the size of the new loan and its portability provision.
