Wall Street Wins One Against Shadow Banks in $450 Million Deal
Wall Street Wins One Against Shadow Banks in $450 Million Deal
(Bloomberg) -- Some of the biggest U.S. banks are rushing to lend to a company that a year ago they found too risky.
The firms -- Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. -- agreed to lend $450 million to TransPerfect Global Inc. to help it refinance a loan that the language- and translation-services provider got from an alternative lender last year, according to Chief Executive Officer Phil Shawe. To clinch the deal, they agreed to slash the company’s interest rate by more than 3 percentage points from what Owl Rock Capital Partners had provided.
The deal stands out in the hyper-competitive leveraged-loan market, where shadow banks have been chipping away at Wall Street’s market share. New York-based TransPerfect has also shored up its balance sheet in the year since its deal with Owl Rock.
“I wanted to stay partners with Owl Rock and they wanted to stay with us -- it just wasn’t feasible based on what we were being offered,” Shawe said.
Owl Rock provided an emergency loan to TransPerfect last year to help put an end to a legal dispute between co-founders Shawe and his ex-fiance Elizabeth Elting. Elting filed a petition in Delaware Chancery Court in 2014 to dissolve the partnership between her and Shawe due to clashes between the two. That action eventually led to the company being put up for a forced sale. The tug of war over control of the company ended in May 2018, when Shawe purchased the remaining shares of the company from Elting.
“Having the litigation in our rearview mirror allowed us to be judged on the financial performance of the company,” Shawe said.
Representatives for Bank of America, JPMorgan and Citigroup declined to comment.
JPMorgan CEO Jamie Dimon said in his April shareholder letter that the bank has been monitoring “accelerating” growth in non-bank lending. And in October, Bank of America Chief Financial Officer Paul Donofrio said his company was grappling with “intense” competition from shadow lenders, which weighed on earnings.
Lower Costs
The new financing was priced at 300 basis points over Libor, down from 675 basis points over Libor on the existing debt. The loan will allow the company to slash its annual interest expense by over 40%, or more than $15 million a year, Shawe said. The new debt matures in June 2024.
TransPerfect began exploring a refinancing of its existing Owl Rock debt in March. Though both the company and the direct lender “were willing to bend a lot,” they weren’t able to come to an agreement, Shawe said.
“We had a wonderful experience working with TransPerfect and look forward to their continued success,” an Owl Rock spokesman said.
Shawe said wrapping up the legal case, as well as an increase in earnings from adding new clients and expanding existing relationships, helped it boost earnings, which enabled it to score the improved terms. The firm’s Ebitda increased 22% in 2018 to $92.3 million, he said.
TransPerfect intends to use the cost savings to explore potential mergers and invest in the business through hiring and geographic expansion, as well as for general corporate purposes, he said.
To contact the reporters on this story: Michelle F. Davis in New York at mdavis194@bloomberg.net;Kelsey Butler in New York at kbutler55@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;Natalie Harrison at nharrison73@bloomberg.net, Steve Dickson, Daniel Taub
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