By Paul Deckelman
New York, June 14 - Zayo Group LLC came to market Thursday with a solidly oversubscribed, well-received $1.25 billion two-part junk bond offering, high-yield syndicate sources said.
The Louisville, Colo.-based telecommunications company priced $750 million of 7.5-year senior secured notes (B1/B) at par to yield 8 1/8% and $500 million of eight-year senior unsecured notes (Caa1/CCC+) at par to yield 10 1/8%.
Both halves of the deal got done inside of price talk heard in the market on Wednesday, which envisioned a yield in the 8¼% area for the secured notes and in the 10¼% area for the unsecured paper.
The secured notes have three years of call protection. The unsecured notes will not be callable for the first four years after issue.
The notes are being sold to qualified investors under Rule 144A with registration rights.
The secured notes were brought to market via joint book-running managers Morgan Stanley & Co. LLC, Barclays Capital Inc. and UBS Securities LLC, along with co-managers Goldman Sachs & Co., RBC Capital Markets Corp. and Sun Trust Robinson Humphrey Inc.
The unsecured notes deal was done through bookrunners Morgan Stanley, Barclays and SunTrust Robinson Humphrey, along with co-managers Goldman Sachs, RBC and UBS.
Long time coming
There had been speculation in the junk market as far back as mid-April that Zayo, a provider of fiber-based bandwidth infrastructure and network-neutral collocation and interconnection services, would be doing a billion-dollar-plus bond deal and also lining up nearly $2 billion of bank debt financing to fund its planned $2.2 billion acquisition of AboveNet, Inc. a White Plains, N.Y.-based provider of high-bandwidth connectivity solutions for businesses and carriers. The $84 per share cash acquisition was announced March 19 and was approved by an overwhelming majority of AboveNet's shareholders at a special meeting last week.
Zayo launched a $1.75 billion senior secured credit facility last Wednesday. Then on Monday came the formal launch of the bond deal via conference call and a New York luncheon with potential investors. During the week, syndicate sources reported that the marketing campaign was going well, and the deal was ultimately more than 3.5 times oversubscribed by potential buyers.
The bonds came to market via the company's Zayo Escrow Corp. unit, which will be merged with and into parent Zayo Group and Zayo Capital, Inc. when the AboveNet acquisition closes, which is expected some time around the middle of the year.
Concurrently with the bond deal pricing, terms were finalized on the bank loan portion (B1/B) of the financing, consisting of a $1.5 billion seven-year term loan B and a $250 million revolving credit facility. The term loan tranche priced at Libor plus 587.5 basis points, the mid-point of pre-deal market price talk of between 575 bps and 600 bps over Libor. There's a 1.25% Libor floor, 101 soft call protection for one year as well as 1% amortization per year. The deal was sold at an original issue discount of 98.
Morgan Stanley Senior Funding Inc. and Barclays were the lead arrangers on the term loan and bookrunners with RBC, while SunTrust Robinson Humphrey, Morgan Stanley, Barclays, UBS, RBC and Goldman Sachs were the arrangers on the revolver.
Besides Zayo's actual acquisition of AboveNet, some of the bond and bank debt proceeds, along with other funding - a total of $290 million of equity from GTCR, a Chicago-based private equity firm, and Charlesbank Capital Partners, a current Zayo investor, as well as cash on hand - will be used to refinance existing debt at Zayo and AboveNet. Zayo launched a cash tender offer June 4 for any and all of its $350 million of outstanding 10¼% senior secured first-priority notes due 2017 and also began soliciting noteholder consents to proposed indenture changes.
Holders who validly tender their notes and agree to the indenture changes by the offer's consent deadline, 5 p.m. ET on Friday, will receive total consideration of $1,112.74 per $1,000 principal amount of notes tendered, including a $30.00 per $1,000 principal amount consent payment. Holders tendering after that consent deadline but before the offer expiration at midnight ET on June 29 will receive consideration of $1,082.74 per $1,000 principal amount tendered but no consent payment. All tendering holders will receive accrued interest. All deadlines are subject to possible extension, and the tender offer is subject to a financing condition, among other conditions.
Sara Rosenberg contributed to this report
| Issuer: | Zayo Escrow Corp., to be assumed by Zayo Group, LLC and Zayo Capital, Inc.
|
| Amount: | $1.25 billion
|
| Trade date: | June 14
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| Settlement date: | June 28
|
| Distribution: | Rule 144A with registration rights
|
| Marketing: | Investor conference call and luncheon, short net roadshow
|
|
|
| Tranche 1:
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| Issue: | Senior secured notes
|
| Amount: | $750 million
|
| Maturity: | Jan. 1, 2020
|
| Bookrunners: | Morgan Stanley & Co. LLC, Barclays Capital Inc. and UBS Securities LLC
|
| Co-managers: | Goldman Sachs & Co., RBC Capital Markets Corp. and SunTrust Robinson Humphrey Inc.
|
| Coupon: | 8 1/8%
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| Price: | Par
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| Yield: | 8 1/8%
|
| Spread: | 698 bps over 3 5/8% Treasury due Feb. 15, 2020
|
| Call option: | Make-whole call at Treasuries plus 50 bps prior to July 1, 2015; 104.063 on or after July 1, 2015, 102.031 on or after July 1, 2016, at par on or after July 1, 2017
|
| Equity clawback: For up to 35% of issue at 108.125% until July 1, 2015
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| Ratings: | Moody's: B1
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| S&P: B
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| Price talk: | 8¼% area
|
|
|
| Tranche 2:
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| Issue: | Senior unsecured notes
|
| Amount: | $500 million
|
| Maturity: | July 1, 2020
|
| Bookrunners: | Morgan Stanley & Co. LLC, Barclays Capital Inc. and SunTrust Robinson Humphrey Inc.
|
| Co-managers: | Goldman Sachs & Co., RBC Capital Markets Corp. and UBS Securities LLC
|
| Coupon: | 10 1/8%
|
| Price: | Par
|
| Yield: | 10 1/8%
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| Spread: | 883 bps over 2 5/8% Treasury due Aug. 15, 2020
|
| Call option: | Make-whole call at Treasuries plus 50 bps prior to July 1, 2016; 105.063 on or after July 1, 2016, 102.531 on or after July 1, 2017, at par on or after July 1, 2018
|
| Equity clawback: For up to 35% of issue at 110.125% until July 1, 2015
|
| Ratings: | Moody's: Caa1
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| S&P: CCC+
|
| Price talk: | 10¼% area
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