MAI Holdings (Mark Andy) tightened debt incurrence and RP protections in its proposed senior secured bond after pushback during its long roadshow, according to three buysiders following the deal. The changes give debtholders greater control on the company’s ability to engineer flexibility in its capital structure through acquisitions, the buysiders said.

The USD 135m five-year non-call two senior secured bond, which is rated B by S&P, was launched last week and priced at 9.5% and par today, (14 June) in line with official price talk circulated yesterday. William Blair served as sole placement agent for the transaction.

Proceeds will refinance the company’s USD 40m revolver due 2019, USD 75m senior TL due 2019, a USD 25m subordinated TL due 2020, and fund general corporate purposes. In conjunction with the notes offering, the company will also enter into a new ABL revolving credit facility.

Following pushback from buysiders during the roadshow process, the company tightened covenants around debt incurrence and restricted payments on Wednesday, sources said. The debt incurrence threshold was tightened to a 2.1x fixed charge coverage ratio in the first year, scaling up to 2.25x in the second year, said a buysider. The threshold was previously at 2x for the life of the deal.

The RP basket now excludes synergies and cost savings that the company might project from an acquisition. This provision prevents Mark Andy from making an acquisition and building the RP basket with the synergies, rather than how the company is performing on its own, noted one of the sources.

On the earnings front, performance is set to step up this year on the back of a new exclusivity agreement with DuPont, and further integration of Presstek – a direct imaging company Mark Andy bought in March. One pending transaction remains with a US manufacturer of print finishing equipment and is expected to close before the notes offering closes.

Pro forma the new financing, Mark Andy is levered around 4.2x, based on USD 31.9m LTM combined adjusted EBITDA and USD 135m in total debt. Stripping out the adjustments for acquisitions, the company’s LTM EBITDA through 31 March came in at USD 22.6m.

The sources estimated that Mark Andy will generate USD 32m-USD 42m in adjusted EBITDA over the next year, which would unlock USD 17m – USD 27m in free cash flow assuming less than USD 2m in capex and USD 12.8m of interest expense.

Pro forma the new deal, the company’s liquidity includes approximately USD 5.3m in cash and USD 32m of availability through its new ABL facility, subject to its borrowing base.

Consumables resilience

Mark Andy manufactures and distributes printing equipment and related products to the packaging industry, used, for example, to print graphics onto food and beverage packaging. The business is split roughly 50/50 between the equipment itself and the consumables business, which supplies products such as toner and flexographic printing plates to customers.

While sales of new equipment are vulnerable to cyclicality, the consumables business should be more resilient, making the future of the recent exclusivity agreement between Mark Andy and DuPont a key factor in the company’s medium-term outlook, said two of the buysiders.

That agreement, struck in January, positioned Mark Andy as the exclusive distributor of DuPont’s Cyrel flexographic printing plates—which are used by some of Mark Andy’s printing equipment—in the US through 31 January 2020. After that time, DuPont can contract with other distributors but Mark Andy is still locked in as a partner through 31 December 2022.

The company expects the exclusivity agreement, along with the Presstek deal and the other pending acquisition, to boost sales in its consumables business, giving the company extra protection from cyclicality.

The deals also grant Mark Andy access to international consumables markets—until now, the company has largely been focused on the US and Canadian consumables markets, a buysider said.

Overall, the transactions further the company’s “total solutions model”, helping it become a “one-stop shop” for products, services and consumables, the company said in deal documents.

Sources said comps for Mark Andy were hard to come by because of the niche nature of its business, but that at 9.5%, the deal offers a sizeable premium over the roughly 6.3% offered by the B-rated portion of the Bloomberg Barclays HY index.

However, offsetting the juicy coupon, its small size and lack of a Moody’s rating are likely to constrain its secondary market liquidity, said one of the source.

William Blair declined to comment. Mark Andy did not respond to requests for comment.

2018 Debtwire