Platinum Equity’s latest attempt to finance a dividend payment in the high yield market is in flux today, as investors seek several key changes to Husky Injection Molding’s proposed holdco PIK toggle notes, according to five sources following the situation.

Investors are asking for pricing in the 12%-13% area at a 97-98 OID, three of the sources said. Initial whispers circulated in the 12% area for the cash component with an extra 75bps when paid in kind.

Lead bookrunner BofA held an investor call on Tuesday for the USD 450m holdco PIK toggle notes due 2025, with the notes initially slated to price yesterday. Timing of the deal is currently uncertain, and the offering may be downsized or shelved entirely, three of the sources said.

Among the structural changes that some investors would like to see is a longer non-call period (currently one year) and a more lucrative equity claw. Currently the equity clawback for up to 40% of the notes allows the company to buy the bonds at 102 in 2021, 101 in 2022, and par the following year.

Meanwhile, according to Xtract Research, the documentation contains an “unreasonable” USD 200m basket for priming holdco debt in the future guarantor covenant. The covenants also include permitted liens exceptions, which could be used for the incurrence of secured debt at the issuer level.

Pro forma the deal, leverage would be 6.8x, based on USD 396m of LTM EBITDA as of 30 September and USD 3.15bn of total debt. Free cash flow would amount to around USD 188m (6.9% of debt), if the company cash-pays the USD 54m of interest on 12% bonds, given USD 218m in interest expense and USD 44m in capital expenditure.

Platinum acquired Husky in March 2018 for USD 3.85bn, including a roughly USD 1.2bn equity contribution. The USD 450m in bonds would return nearly 40% of the initial investment.

The LBO was backed by a USD 2.1bn Libor+ 300bps TLB due 2025, which has traded off by about two points since the dividend deal was announced, to 96.34/97.165, according to Markit.

Its USD 630m 7.75% senior unsecured notes due 2026, also issued at the time, traded down to 95 to yield 8.81% on Wednesday (5 February) from trades at 97/98 late last week. The notes traded most recently today at 97.25 to yield 8.325%, according to MarketAxess.

BofA declined to comment. Messages left for Platinum and Husky were not returned.

2020 Debtwire