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Arrow Global raising new debt to fund Capquest deal

Reuters - UK Focus

By Robert Smith

LONDON, Sept 24 (IFR) - London-listed debt purchaser Arrow Global intends to raise £225m of new debt to finance its acquisition of its smaller peer Capquest.

Arrow Global (LSE: ARW.L - news) made its bond market debut in January 2013, pricing a £220m seven non-call three deal at par to yield 7.875%, before listing on the stock market later that year.

The company is acquiring fellow UK debt purchaser Capquest, financing the purchase solely through debt and available cash. Goldman Sachs (NYSE: GS-PB - news) has provided committed financing for the proposed £225m debt raise, which will also provide Arrow Global with cash on balance sheet to fund further debt portfolio purchases.

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The deal will leave the company with pro-forma net debt of £410m and a net debt to adjusted Ebitda ratio of 3.2x.

The company is also increasing its revolving credit facility to £100m, while extending its maturity by a year to January 2019 and slashing its margin by 50bp. The RCF will be fully undrawn on completion of the deal.

This is the second time Arrow has upped its revolver in the past 12 months, having increased the facility to £55m in October 2013. A large RCF is useful to debt purchasers as they can use it to buy up portfolios, before refinancing the drawings with longer term debt.

Arrow's bonds softened in the secondary market following announcement of the deal. Its outstanding deal was bid at cash price of 104.25 on Tuesday afternoon, according to Tradeweb, but had traded down nearly two points to 102.6 on Wednesday.

The deal to buy Capquest is the year's second major instance of consolidation in the sector to be financed in the debt markets. Cabot acquired Marlin in February, transferring across the company's existing £150m bond before issuing £175m of new paper the following month.

Capquest in contrast to Marlin has no outstanding bonds, and the new deal will pay down its existing term loan, RCF and certain shareholder and management loans. (Reporting by Robert Smith)