II-VI Inc. is launching today the $2.8 billion term loan B due 2028 that is part of the financing package backing the company's previously announced acquisition of Coherent Inc., according to sources. A lender call is scheduled for today at 11 a.m. ET, and commitments to the J.P. Morgan-led deal are due by 5 p.m. ET on Dec. 7.
Price talk for the seven-year covenant-lite TLB is L+275, with a 0% Libor floor and an original issue discount in the range of 99-99.5. That implies a yield to maturity of 3.12%. Lenders are offered six months of 101 soft call protection.
Moody's has confirmed II-VI's corporate rating at Ba3, with a positive outlook, and assigned a Ba2 rating to the company's new senior secured credit facilities, which also include a revolver and term loan A. Fitch affirmed the BB issuer rating and assigned a BBB- issue-level rating and 1 recovery rating to the revolver and TLB.
Existing secured ratings from S&P Global Ratings are BB, with a recovery rating of 2 and a corporate rating of BB-, on negative watch.
On March 25, II-VI entered into a definitive agreement to acquire Coherent in a roughly $7 billion cash-and-stock deal following a protracted battle with rival bidder Lumentum. Under the terms of the deal, the per-share consideration to Coherent shareholders is $220 in cash and 0.91 of a II-VI common share. Existing debt at both companies will be refinanced. Closing is expected in the first quarter of 2022.
Committed debt financing for the deal of about $4.99 billion, including unfunded revolving credit capacity, was obtained from J.P. Morgan, Citi, MUFG, PNC Capital Markets, HSBC, Citizens, Mizuho, BMO Capital Markets, TD Securities and First National Bank of Pennsylvania. Financing includes the new TLA, a $350 million senior secured revolver and senior unsecured debt. The TLA and revolver are subject to net leverage and interest coverage covenants, Moody's noted.
Additional funding for the transaction comes from $2.15 billion of convertible preferred financing from Bain Capital.
As for existing debt at the two companies, Coherent has a €353.2 million TLB due November 2023 priced at E+225, with a 0.75% floor and with a step-down to E+200 when gross leverage is below 1.5x. As of Sept. 30, II-VI's existing credit facilities included roughly $1 billion outstanding of a TLA as well as a $450 million revolver. The company also has convertible notes outstanding.
II-VI manufactures engineered materials and optoelectronic components and devices. Coherent provides lasers, laser-based technologies and laser-based systems solutions for a range of industries.
