September 13, 2019 / 5:17 PM / 3 days ago

Integrity Marketing raises jumbo US$945m unitranche loan

NEW YORK, Sept 13 (LPC) - Dallas-based Integrity Marketing Group is the latest US middle market company to raise a jumbo loan from the private debt market, in a deal backing private equity firm Harvest Partners’ strategic growth investment in the company in late August, sources said.

Credit investors Owl Rock Capital Partners, Crescent Capital and Antares Capital provided the US$945m unitranche loan to Integrity Marketing, which sells life and health insurance products to the senior market. The trio were joint lead arrangers, and Owl Rock also acted as administrative agent.

Integrity Marketing is the most recent US mid-sized firm to raise a loan in the billion dollar range that has not been arranged or provided by banks. Private equity firms are increasingly able to execute larger deals via direct lenders and private credit investors flush with capital that can move discreetly in highly competitive, fast moving or otherwise sensitive processes.

“When working with direct lenders, sponsors and borrowers know exactly what the terms of the financing will be and can factor the cost into the purchase price. That is helpful in a high valuation environment,” said Craig Packer, co-founder of Owl Rock Capital Partners.

At least three other jumbo private debt deals were completed over the summer, including a US$1.79bn term loan for New Media Investment Group from Apollo Global Management that funded its US$1.4bn acquisition of USA Today-owner Gannett.

ION Group also tapped Goldman Sachs Private Credit and HPS to provide a US$1.25bn untiranche loan for its takeover of financial media and data firm Acuris, while E2open, a cloud-based supply chain management services company, lined up a US$950m unitranche loan via Golub Capital to buy Amber Road.

Direct lending deals are not subject to the same market risk and price flex that comes with executing a transaction in the syndicated loan market.

Unitranche volume grew for three consecutive quarters starting in the fourth quarter of 2018 and hit a record high of US$9.2bn in the second quarter this year, according to Refinitiv LPC data. Average unitranche size also increased in the second quarter to US$175m, from US$140m in the first quarter.

The unitranche structure has evolved since the loans first garnered attention in 2016 as hybrid instruments that combine senior and subordinated debt into a single tranche at a blended interest rate. The loans initially appealed to sponsors and borrowers for the ease of execution, especially in times of market volatility and were primarily provided to small and middle market companies.

Since then, direct lenders and private credit providers have proliferated and expanded significantly in scale and are now able to write bigger checks. This shift has made non-bank lenders increasingly competitive with traditional investment banks as sponsors and issuers seek to raise debt quickly at competitive levels in terms of cost of capital and leverage, with limited execution risk.

IN DEMAND

Hefty demand for untranche facilities has caused average spreads on the loans to fall below the 600bp threshold. The average spread on unitranche loans is 592bp in the third quarter to date, compared to 606bp in the previous quarter and 612bp in the first quarter, according to Refinitiv LPC.

Integrity Marketing’s new loan pays lenders a spread of 575bp over Libor. The new loan refinanced the company’s prior first- and second-lien capital structure.

Last November, the company arranged a US$267.5 first-lien term loan priced at 425bp over Libor and a US$87.5m second-lien term loan priced at 850bp over Libor in place to fund a dividend recapitalization, along with an additional US$60m of delayed draw term debt across the first- and second-lien facilities.

Those loans were arranged by Antares Capital. As of June 30, firms including Golub Capital, Garrison Capital, Audax and Crescent held pieces of the debt, according to Refinitiv LPC’s BDC Collateral. PennantPark was invested in the second-lien loan.

Following Harvest’s strategic investment, middle market private equity firm HGGC, which initially invested in the company in July 2016, and the company’s management team will continue to collectively control a majority equity stake, according to an August 28 statement.

“Integrity sits in the middle between big insurance companies and a network of thousands of agents serving primarily elderly individuals,” Packer said. “The company has been growing and acquiring other insurance marketing organizations to expand its reach within the marketplace. There is also a renewal component to the revenue stream that creates a predictable set of cash flows.”

Integrity Marketing made its first acquisition two weeks after Harvest’s announcement. On September 11 Integrity said it had bought The Pinnacle Benefits Group, an insurance marketing organization headquartered in North Carolina.

Antares declined to comment. Crescent and Harvest did not immediately respond to requests for comment. (Reporting by Leela Parker Deo. Editing by Tessa Walsh and Michelle Sierra)

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