Cengage lifts term loan to $1.65 billion, flexes to SOFR plus 425 bps

By Sara Rosenberg

New York, March 15 – Cengage Learning Inc. upsized its senior secured covenant-lite first-lien term loan B due March 2031 (B2/B) to $1.645 billion from $1.613 billion and reduced pricing to SOFR plus 425 basis points from talk in the range of SOFR plus 450 bps to 475 bps, according to a market source.

Also, incremental was revised to tighten the first-lien net leverage governor for first-lien debt to 3.35x from 3.8x, the secured net leverage governor for junior-lien debt to 3.6x from 3.8x and the total net leverage governor for unsecured debt to 4.85x from 5.8x.

In addition, the inside maturity basket was reduced to the greater of $150 million and 50% EBITDA from the greater of $375 million and 85% EBITDA, MFN sunset was increased to 12 months from six months and all carveouts were removed, and the general debt basket was reduced to the greater of $219.5 million and 50% EBITDA from the greater of $263.4 million and 60% EBITDA, the source said.

Available restricted payment capacity debt basket was changed to remove the basket permitting the incurrence of unsecured debt based on available capacity for restricted payments, the total net leverage governor under the ratio investment basket was tightened to 3.1x from 4.05x, the total net leverage governor under the ratio restricted payment basket was tightened to 2.85x from 3.8x, and the total net leverage governor under the ratio RDP basket was tightened to 3.1x from 4.3x.

Furthermore, the definition of “material intellectual property” under J. Crew protection was modified to capture intellectual property that is material to the business of the borrower and its subsidiaries, taken as a whole, versus the loan parties.

Lastly, the look-forward period under EBITDA run rate adjustments was reduced to 18 months from 24 months, and asset sale sweep was revised to tighten the step-down to 25% to 2.6x first-lien net leverage from 3.05x and the step-down to 0% to 2.1x first-lien net leverage from 2.55x, the source continued.

The term loan still has a 1% floor, an original issue discount of 99, 101 soft call protection for six months, 0 bps CSA and amortization of 1% per annum.

Morgan Stanley Senior Funding Inc., BMO Capital Markets, Wells Fargo Securities LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs Bank USA, Standard Chartered, UBS Investment Bank, Apollo and KKR Capital Markets are the bookrunners on the deal. Morgan Stanley is the agent.

Recommitments were scheduled to be due at 5 p.m. ET on Friday, the source added.

Allocations are expected on Monday.

Proceeds will be used to refinance the company’s existing $1.613 billion term loan B and, due to the upsizing, to pay related fees and expenses.

Cengage is a Boston-based educational content, technology and services company.

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