Avago Technologies priced a meaty three tranche high yield bond in New York on Monday (November 21), raising $1 billion via joint bookrunners Lehman Brothers, Citigroup and Credit Suisse First Boston. The deal represents the largest high-yield offering from Asia this year, even though many view the deal as a US credit play.
Avago is incorporated in Singapore but is headquartered in California. The deal is comprised of: a $500 million eight-year non call four-year senior fixed rate tranche; a $250 million 7.5-year non call two-year senior FRN tranche (both rated B3/B), and a Caa2/CCC+ rated $250 million 10-year non call five-year senior subordinated tranche.
The deal, along with a loan, is part of a $1.975 billion LBO financing package for the purchase of Avago, formerly the semiconductor arm of Agilent Technologies, by US-based private equity firms Kohlberg Kravis Roberts (KKR) and Silver Lake Partners, plus Singapore government investment arm GIC. Avago was sold for $2.66 billion in August. The offering, which will be placed on Avago's balance sheet, was marketed to investors via an extensive roadshow that paid particular interest to US-based investors, with stops in Boston, New York, Chicago, Houston, Milwaukee and Minneapolis. Indeed, approximately 75% of the total book was placed with US-based accounts, with the remaining portion being split between European and Asian-based investors.
All tranches were oversubscribed 1.5-2 times. Initial price guidance for the fixed rate tranche was set at 9.75% to 10%, while the FRN was marketed at the 525bp to 550bp level over Libor. The subordinated tranche was looking to be priced at around the 11.5% level.
Pricing for the senior fixed rate bond came at par on a coupon 10.125%. The FRN tranche also priced at par on a coupon of 550bp over three-month Libor. The subordinated notes priced at par with a coupon of 11.875%.
Although each of the tranches priced at the wide end, or slightly wider than initial guidance, many market insiders commented that the option to leave something on the table for investors was a wise move and helped ensure a solid response in secondary trading. Indeed, the deal was trading up by a quarter to three-eighths of a point at the break on Tuesday.
Despite its unwieldy size and the market's lack of enthusiasm for new high yield issuance, Avago was able to tap into a strong tech bid emanating from the US and Asian markets. Furthermore, as interest rates are expected to rise over the next few months, there has been an escalating appetite for floating rate notes.
Additionally the deal was further strengthened by a 45% infusion of equity by new parent KKR. Completion of the deal also helps to answer the questions that have plagued the high-yield space over the past few weeks following the cancellation of a number of deals. Market participants were keen to see whether a deal of this size could be brought to market successfully in light of the recent volatility, especially in the US new issuance market.
Silver Lake Partners is a California-based private equity firm that focuses solely on investments in technology companies and has a portfolio that includes Ameritrade, Business Objects, Flextronics, Gartner, NASDAQ, Network General, Seagate, SunGard, and UGS. Headquartered in New York, KKR specializes in management buyouts, and is one of the largest and most active participants in the private equity industry.
Through the KKR Funds, the firm has invested over $21 billion of equity capital in more than 130 transactions with total financing raised for management buyouts and other investments exceeding $162 billion. KKR's portfolio of companies includes Accuride, Alliance Imaging, Sealy and Toys "R" Us.
