Pactera, a Chinese IT consulting and outsourcing company, has sold a $275 million seven-year bond – Asia’s first high-yield note used to fund a LBO transaction since 2011.
The bond - that is callable in the third year - was issued on Thursday through Pactera sponsor BCP (Singapore) VI Cayman Financing and is the first seven-year LBO financing package for a Greater China deal.
Pactera’s deal has a coupon of 8%, which is the lowest coupon of any Asia sponsor high-yield bond, note sources close with the deal.
The proceeds will be used to finance Blackstone Group consortium’s proposed acquisition of Nasdaq-listed Pactera Technology International, which will be a subsidiary of the issuer after the acquisition, according to a term sheet seen by FinanceAsia. It will cost the consortium around $600 million.
“This is an ice-breaker type deal,” said the source. “Blackstone is the LBO-sponsor and that really resonated well with investors.”
The strong sponsorship combined with other factors – a capped deal at $275 million and a rare credit-type in the high-yield space dominated by Chinese property names – helped garner investor demand for the transaction, say bankers.
“The investor base certainly knew that this is not going to be one of the ‘run-of-the-mill’ type of transaction,” said the source. “It’s got quite a unique offering and I would say that investors are today being rewarded.”
Pactera’s notes traded well in secondary markets on Friday morning, with pricing touching 101.25 to 101.75 levels shortly after being priced.
More to come
Bankers believe that Asia will see more LBO transactions backed by high-yield bond financing as the region's debt capital market matures, but bondholders will be very much focused on the issuer’s business model and the quality of the sponsor.
In Pactera’s case, the company has significant operations in both the US and Asia. That dual-story of marketing in two regions to two different buyer bases provides strong growth potential to investors that are holding the corporate’s paper.
Not every company can tap the US bond market easily. There has to be some name recognition and preferably a US angle, as was the case with Barings-backed Nord Anglia Education’s $165 million US high yield bond last year. In that case, the acquisition target owned schools in the US.
The last time Asia saw a direct bond-backed LBO transaction was in March 2011 when Netherlands-headquartered hydraulic cylinder-maker Hyva Global raised a $375 million five-year note that is callable in the third year, according to Dealogic.
The proceeds of the bond - priced at 8.625% - were used to partly finance the €525 million ($750 million) leveraged buyout of Hyva by Asian private equity firm Unitas Capital and Hong Kong’s NSW Holdings at end-2010. Private equity firm 3i was the seller.
Other leveraged situations involving bonds include MMI International’s – a technology company owned by private equity firm KKR – $300 million high-yield note in February 2012, which was used to refinance a loan that had first funded its buyout in July 2007.
Comparables
Based on the fact that Pactera’s transaction was the first of its kind in Asia, there were no one-to-one comparables in the market. The notes are rated Ba3 by Moody’s and BB- by Standard and Poor’s.
However, syndicate bankers note that Pactera’s papers should trade between the upper band of the US high-yield market and lower band of the Asian high-yield market for BB-rated credit.
US high-yield paper normally trade around the mid-to-high single digits while Asian high-yield notes trade around the high-single digits to low-double digits region, added bankers.
“Taking into account the China and EM aspect of it, China logically trades higher than in the US,” said the source. “The US investor base will look at Pactera’s notes as US domestic high-yield plus a spread, and the Asian investor base look at it as Asia offshore high-yield less a spread.”
Being raised in a classic US-type high-yield transaction, no deal stats - including the orderbook size, investor and geography breakdown - were released, say sources.
Bank of America Merrill Lynch was the lead-left bookrunner of Pactera’s deal, meaning the financial institution executed the marketing and bookbuilding process throughout all of the regions. Other bookrunners include Citi and HSBC.
