News

(Adds details, comment)

LONDON, Feb 8 (LPC) – Pharmaceutical company Covis Pharma has amended its refinancing package again, the latest in a number of changes made to the leveraged financing after facing a cool reception from both loan and bond investors over concerns about potential declining sales at the company.

The financing now comprises all loans after the US$350m-equivalent euro-denominated senior secured notes were dropped, with a euro first-lien term loan of the same size being raised instead.

Investors that passed on Covis' financing package have cited the many risks facing the Apollo Global Management-backed company's concentrated product portfolio. Its top drugs - the iron deficiency treatment Feraheme and preterm birth prevention Makena - face declining sales in 2022 as a result of competitive and regulatory pressures.

"Covis is struggling because it's had a binary decision from par lenders who are taking a view that they don't want to be in with the credit. With a marginal deal you can often get it done with a bit more OID, and a bit more upside on the spread," said one Europe-based investor who said he wouldn't be participating in the deal.

"But this is a credit that is so far away from what par lenders are comfortable with that they need to find a different buyer base to get it done. They've recut the structure and now they're ultimately looking at a buyer base that is more credit opportunities-focused rather than typical vanilla investors."

Unlike Keter, which last week pulled a €1.175bn term loan B after investors demanded a larger premium for the deal than private equity owners BC Partners were willing to pay, Covis is under more pressure to get its financing package across the line as it is being used to fund the purchase of respiratory drugs from AstraZeneca.

Pharmaceutical companies like Covis need to keep coming back to the debt markets in order to finance bolt-on acquisitions which are fundamental to the growth of their business, said bankers.

"When deals funding acquisitions come to market they will just print at whatever the clearing price is -- unless there's no clearing price," said a senior leveraged finance banker.

The financing also includes a US$595m first-lien term loan, increased from US$550m, and a US$312m second-lien term loan, upped from US$300m.

The leveraged loan market has been performing better than the high-yield bond space, as investors flock to the safety of floating-rate assets ahead of rate rises.

"There is certainly a strong technical in the loan market at the moment," said the levfin banker. "But loan investors still do discriminate significantly between what they perceive to be good credits versus more difficult credits."

A price for everything?

The five-year dollar loan is still offered at 650bp over SOFR plus a credit spread adjustment, with a 0.75% floor and OID of 93. It comes with 101 soft call protection for 12 months and will amortise at 5% per annum.

The CSA is offered at 10bp under one-month SOFR, 15bp under three-month SOFR and 25bp under six-month SOFR.

The five-year euro-denominated loan is being offered at 650bp over Euribor with a 0% floor and a 93 OID. It comes with 101 soft call protection for 12 months and will amortise at 2.5% in its first two years, 5% in its third year and then 7.5% for the remaining fourth and fifth year.

"There's a price for everything but I guess there's not a price for specific buyers in the par space with this credit," said the investor. "So while that pricing may look appealing, investors seem not to want the headache and risk of this credit in their portfolios. But I do think [Barclays] will be able to get it over the line with a different buyer base."

The seven-year second-lien is being marketed at 975bp over SOFR plus a CSA, with a 1% floor.

Final commitments are now due on Friday by 8am. Allocations will follow shortly thereafter.

The changes disclosed on Monday mark the latest in a series of revisions to Covis' refinancing package since its January 10 launch.

To attract investors, lead arranger Barclays on January 31 widened the US dollar-denominated first-lien loan's margin to 650bp over SOFR plus a CSA, also widening the OID to 93 from guidance of 98-99. The bank upsized the loan to US$550m from US$350m at launch, at the same time scrapping the US$475m US-dollar denominated portion of an initial US$850m notes offering.

Proceeds of the loans will refinance the company's existing debt and refinance debt related to its acquisition of the global rights to peer AstraZeneca's Eklira and Duaklir respiratory medicines, which AstraZeneca on November 1 agreed to sell to Covis for US$270m.

Moody's assigned Covis a corporate rating of B2, a first-lien rating of B1 and a second-lien rating of Caa1 on February 4 report. S&P maintained its preliminary B ratings on Covis and its first-lien term loan on the same day, adding that its preliminary rating on the proposed second-lien loan would be "two notches below" its Single B corporate rating.

((Matt Tracy: +1 571 643 3562, matt.tracy@lseg.com, Twitter: @LPCLoans))

((Eleanor Duncan: +44 (0) 782 725 2612, Eleanor.Duncan@lseg.com))