Hellman, Carlyle Said to Eye $1 Billion Payout From Pharma Firm

(Bloomberg) -- Hellman & Friedman LLC and Carlyle Group LP are seeking to take as much as $1.35 billion of cash out of drug research company Pharmaceutical Product Development LLC.

The firm’s private equity owners are seeking approval from some of PPD’s creditors for the dividend plan, according to people familiar with the matter. To fund the payment, PPD is mulling the sale of a risky type of junk bond called PIK toggle that allows a borrower to delay interest payments, said the people, asking not to be identified discussing a private matter.

Private equity firms have taken advantage of strong creditor conditions in the debt markets to sell around $3 billion of loans to finance dividend payouts this month. The payment contemplated by PPD’s owners would rank as one of the largest debt-funded dividends by a junk-rated company in recent years, beating the $1 billion dividend Sycamore Partners took from its recapitalization of Staples Inc. earlier this month.

A spokesman for Hellman & Friedman declined to comment. Representatives for Carlyle did not respond to requests for comment.

The plan to take cash out of PPD -- one of the largest providers of outsourced clinical research whose clients have included GlaxoSmithKline Plc and Pfizer Inc. -- comes at a particularly turbulent time for the health care sector. Proposals to replace private medical benefits with a single-payer system -- including from Democratic Presidential hopeful Bernie Sanders -- have caused a rout in health stocks in recent weeks.

PPD’s owners have proposed changes to the documents governing the company’s existing debt, the people said. The changes would allow it to distribute as much as $1.35 billion through special dividends and amend other restrictions on dividend payments. Holders of at least some of the bonds have been offered a fee of 1.5 percent if they agree to the changes, according to the people.

JPMorgan Chase & Co. is working on behalf of PPD to arrange the consent solicitation, the people said. A spokeswoman for JPMorgan declined to comment.

Riskiest debt

The PIK toggle bonds being contemplated by the PPD owners are among the riskiest type of junk bonds, as they allow borrowers to delay interest payments until the notes’ final maturity. The issuer typically agrees to pay a higher interest rate if it opts to delay the payment.

In this case, the debt would be issued by PPD’s holding company, ranking it below most of PPD’s existing borrowings and one step further removed from the company’s assets, the people familiar said.

Carlyle Group and Hellman & Friedman acquired PPD in 2011, in a deal valued at $3.9 billion. The Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC joined as minority investors in 2017 as part of a recapitalization that valued the company at more than $9 billion. Representatives at ADIA and GIC did not respond to requests for comment outside of business hours.

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