Flexi-Van hauled its USD 300m second lien offering over the finish line today after agreeing to a double digit coupon and a steep OID, according to two sources familiar with the matter.
During syndication, some of the drawbacks cited by skeptical buysiders as they pushed for a higher yield include the chassis lessor company’s track record of wide earnings swings as well as concerns around low barriers to entry in the marine chassis sector, noted two buyside and two sellside sources.
Flexi-Van had limited time to spare, as it needed to raise the capital ahead of the 15 August maturity of its USD 265m 7.875% senior unsecured notes.
Lead bank BofA Merrill Lynch previously whispered the deal in the high 9%-10% area before pricing the deal today with a 94.417 OID and a coupon of 10% for an 11.5% all in yield, the first two sources noted.
The existing 7.875% notes last traded at 100.125 on 6 February, up from 99.5 on 10 January and 90 in 2H16 when the company endured a bout of earnings volatility, according to MarketAxess. The rest of the capital structure includes a USD 225m revolver due April 2018. Management plans to source proceeds of the new bond offering to fully redeem the 7.875% notes. Excess proceeds will be used to reduce revolver borrowings, and the revolver maturity will be extend to August 2022 from April 2018. Size of the facility will be cut to USD 185m from USD 225m.
As of 30 September the company had USD 3.7m in cash with USD 135m drawn on the revolver.
EBITDA through the LTM period ended 30 September totaled USD 74.5m, up from USD 60m in 2016, but still down from USD 102m the company generated in 2015 before losing a major contract with Hanjin when that company went bankrupt.
Assuming an EBITDA run-rate of USD 74.5m, pro-forma leverage through the USD 300m new note offering comes to around 5.5x, sources said. Capex over LTM period through 30 September totaled USD 7.6m compared to USD 11.27m for 2016 and USD 21.6m in 2015, before the Hanjin bankruptcy.
Given that Flexi-Van’s core operation revolves around leasing the chassis to companies that require them, some of the sources view the business model as high risk should customers look to take chassis ownership in-house.
BofA declined comment. Flexi-Van did not respond to request for comment.