(Source: Dun & Bradstreet Twitter Page)

Corporate Debt Binge Reaches a Firm That Once Employed Lincoln

(Bloomberg) -- One of the original credit raters is now undergoing some thorough credit analysis of its own.

Dun & Bradstreet Corp., the 178-year-old business data firm that used to own Moody’s Investor Service and lists Abraham Lincoln among its former employees, is looking to sell $4 billion of debt to help finance its private equity buyout.

The deal is one of the largest and riskier debt offerings to surface in the leveraged finance market since a sell-off in December forced some banks to hold on to loans they had underwritten or offer them at steep discounts as risk appetite soured.

While the buyout of Dun & Bradstreet wasn’t expected to close until this quarter, banks arranging the debt sale had originally discussed bringing it to market in December but held off as market conditions deteriorated, according to people familiar with the matter. A separate person said timing depended on regulatory approval.

Investors have again warmed up to new issues as the market snapped back this month, leading leveraged loans and high-yield bonds to erase most of their end-of-year losses. That is encouraging banks to bring larger and riskier deals to market such as the more than $2 billion loan for Carlyle Group LP’s buyout of aircraft maintenance provider StandardAero, which priced on Thursday at better terms than originally marketed.

Deal Structure

There are signs that even against an improved backdrop, underwriters are being cautious. The structure of the Dun & Bradstreet financing has been reworked to reduce the amount raised through leveraged loans to $2.6 billion, as investors continue to pull cash from that asset class. A $500 million secured bond was added to make up for the difference.

The deal also includes a $850 million unsecured bond that has received ratings in the CCC range by two of the three main bond graders.

Representatives for Bank of America Corp. and Citigroup Inc., which are leading the loan and bond offerings respectively, and a spokeswoman for the private equity consortium declined to comment. Representatives for the company didn’t respond to requests for comment.

Dun & Bradstreet’s new owners, which include CC Capital and Thomas H. Lee Partners, aim to cut costs to the tune of $200 million through the buyout, which is expected to saddle the company with nearly three times the amount of debt it currently has on its balance sheet, according to an investor presentation seen by Bloomberg.

They face the challenge of convincing debt buyers the expected cost savings are within reach amid deepening skepticism from investors of companies’ projections and concerns the U.S. may slip into a recession over the next couple of years.

Cost Savings

The provider of commercial data has already warned investors that it may fall short of its own projections. “We will not fully realize such cost savings within 12 months of the completion of the merger, and may not do so at all,” Dun & Bradstreet said in a filing on Thursday. It also said that while it will be required to make “significant cash expenditures” to realize those savings, it was not including the expenditures in its earnings calculation.

The company expects to spend between $50 million and $60 million to achieve the savings, according to one of the people with knowledge of the plan.

The deal is being marketed to investors with a debt-to-earnings ratio of around 5.3 times, which incorporates the full impact of the expected cost savings and is based on financials as of the end of September, the presentation shows.

The deal also includes around $1 billion of preferred equity, which S&P Global Ratings said it considers debt. The ratings firm expects leverage to remain at around 10 times over the next couple of years, up from 3.1 times as of the end of September. Fitch Ratings, which doesn’t include the preferred equity in its leverage calculation, puts the number at 8.1 times with an expectation it will decline to around 5 times by the end of 2022 as cost savings are realized.

Dun & Bradstreet agreed to sell itself last year to a group of private investors led by CC Capital -- the private investment firm founded by former Blackstone Group LP dealmaker Chin Chu -- Cannae Holdings Inc. and Thomas H. Lee Partners. The deal values the company at around $7.1 billion, according to the presentation.

Short Hills, New Jersey-based Dun & Bradstreet was such a staple of the 20th century’s business world that Marilyn Monroe posed with one of its business directories in the 1953 movie “How to Marry a Millionaire.” After spinning off businesses such as Cognizant, Nielsen and Moody’s in the 1990s, the company has refocused its offering on trade credit and other risk management tools but it has struggled to return organic growth to its pre-crisis levels, according to Fitch.

And Lincoln? He was one of just four U.S. presidents who once worked for Dun & Bradstreet as credit reporters.

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