Bloomberg reported:
McAfee Corp. is selling $5.7 billion of leveraged loans and is expected to soon launch another $3.3 billion of bonds as part of its sale to investors including Advent International Corp. and Permira Advisers. Athenahealth is raising $9.3 billion of loans and bonds, which will help fund its buyout to a group led by Hellman & Friedman LLC and Bain Capital.
Cybersecurity software maker McAfee is marketing its deal at 7.8 times leverage. The LBO of Athenahealth, a health information technology company, is at a similar level of 7.6 times total leverage.
Better stated: Private equity firms will load their newest affiliates with nearly $10 billion in debt and place them at risk for future default due to high leverage levels (more than Bloomberg reported according to Fitch).
AthenaHealth's price tag rose from $5.7 billion in 2019 to $17 billion in 2021. Fitch had this to say about the deal's financing:
The transaction, expected to close in 1Q22, is to be financed in part through the issuance of a $5.75 billion 1L term loan B (Tlb), a $1 billion DDTL to be undrawn at close, $2.5 billion in new senior unsecured notes, and $2.36 billion of new preferred equity that Fitch does not treat as debt of the rated entity under its "Master Corporate Rating Criteria," and HoldCo PIK and Shareholder Loans adjustments.
Fitch estimates fiscal 2021 pro forma leverage of 9.2x.
Fitch noted McAfee's exploding leverage under its PEU buyout:
Pro forma for the LBO transaction, leverage is expected to rise to over 8.5x. Fitch believes the company's leverage tolerance under private ownership will be significantly elevated compared to what was seen under public ownership.
Upon completion of the transaction as proposed, Fitch expects a significant change in financial structure that could result in a multi-notch downgrade..
I am not sure why Bloomberg was so deferential to the PEU boys. Their reporters must want continued access to billionaires who can't get enough and won't part with their incomprehensible wealth by allowing politicians to drop their preferred "carried interest" taxation.
