Prison-Food Vendor Hikes Yield to 10.5% on Struggling Debt Sale

A private equity owned prison-food vendor is being forced to revamp the structure of a $1.6 billion bond and loan sale for the second time after facing weak demand, according to people with knowledge of the matter.

TKC Holdings Inc. is now offering a yield of up to 10.5% on the riskiest portion of the financing and has shifted another $400 million from loans to bonds, said the people, who asked not to be named because the details are private.

Some money managers have opted to pass on the financing due to environmental, social and governance issues amid growing criticism of companies that profit from mass incarceration and worries that the Biden Administration may clamp down on the industry, the people said. Others have expressed concerns over owner HIG Capital’s financial policy, which has included several debt-funded dividends.

Representatives for TKC and HIG did not immediately respond to requests for comment. Jefferies Financial Group Inc., which is leading the financing, declined to comment.

TKC has had a particularly hard time drumming up interest among its existing lenders in the leveraged loan market, where it initially sought to raise $1.125 billion. The company has now shifted $600 million of the financing to the bond market, where reception has been warmer. The deal has now received enough demand to price next week, the people said.

Even so, it’s been forced to boost the compensation offered to investors across the board, which will increase its debt servicing costs.

The now $525 million loan is being offered at a spread of 5.5 percentage points over the London interbank offered rate, compared to 4.75 to 5 percentage points originally, according to the people.

A new secured bond that was added to the structure after the loan size was cut on Friday is being marketed to investors at a yield of around 7%, while pricing on the now $700 million unsecured portion has moved into the 10.25% to 10.5% range, up from from the low-to-mid 9% area earlier in the week, the people said.

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