(Bloomberg) -- A group of lenders led by Deutsche Bank AG has been forced to come up with the cash to finance the leveraged buyout of typeface developer Monotype Imaging Holdings Inc. after struggling to find buyers for the debt.
The banks had agreed to arrange debt financing to help private equity firm HGGC fund its takeover of the company, which owns the rights to popular fonts such as Times New Roman and Helvetica. After attempting to attract investors for about a month, the banks had to fund a $425 million loan so the deal could close last week, according to people with knowledge of the matter.
The offering is the latest in a string of speculative-grade deals that have found tepid reception in recent months as investors shun riskier debt amid signs of a slowdown in the global economy. Banks that helped Apollo Global Management Inc. finance the buyout of photo printing company Shutterfly Inc. were also left holding some of the debt.
Mutual funds that invest in leveraged loans have been battered by outflows this year, while collateralized loan obligations -- the largest buyers of such loans -- are at risk of exceeding limits on the amount of risky debt they can own, further crimping demand. Monotype’s loan is rated B2 by Moody’s Investors Service and B- by S&P Global Ratings.
Deutsche Bank, the lead arranger for Monotype, is still actively working with money managers that have expressed interest, and aims to complete the syndication as early as next week, said one of the people, who asked not to be identified because the discussions are private.
The bank had already placed a $135 million second-lien loan privately before syndication for the rest of the financing began last month.
Representatives for Deutsche Bank, Monotype and Palo Alto, California-based HGGC declined to comment.
The banks had made a number of concessions on the pricing and structure of the financing to help drive demand. They reduced the size of the first-lien loan to $425 million from $440 million and sweetened pricing twice, ultimately offering the debt at a discount of 95 cents on the dollar and a spread of 5.5 percentage points over the Libor benchmark.
Safeguards governing the loan were also tightened in response to investor concerns, including those limiting the ability of the company to transfer intellectual property -- such as fonts -- outside of creditors’ reach, the people said.
While Monotype benefits from recurring subscription revenues and a well-known portfolio of fonts, it also faces competition from “a plethora of free substitutes,” according to Moody’s.
The buyout will bring the company’s debt load to around seven times a measure of earnings, according to the ratings firm. The banks are marketing the deal with a leverage ratio of around six times after giving credit to adjustments and expected cost savings, the people said.
HGGC agreed to acquire Monotype, which licenses its fonts to companies such as printers and display manufacturers as well as individual users, in July for $825 million.
--With assistance from Sally Bakewell and Jeannine Amodeo.
To contact the reporter on this story: Davide Scigliuzzo in New York at email@example.com
To contact the editors responsible for this story: Natalie Harrison at firstname.lastname@example.org, Boris Korby
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.