Tenneco pre-markets $3 billion bonds backing Apollo LBO, hoping issuance window will open

By Paul A. Harris

Portland, Ore., July 8 – Pegasus Merger Co., an affiliate of Apollo Global Management, Inc., has been pre-marketing $2 billion of secured notes and $1 billion of unsecured notes backing the leveraged buyout of Tenneco Inc. by Apollo, according to a high-yield portfolio manager.

Dealers have been gauging investor sentiment, keeping an eye on market conditions in the hope that a window of opportunity to bring the bond deal will open amid turbulence in the capital markets, according to the manager, who took part in an investor conference call late in the July 4 week.

Meanwhile bond traders are seeing activity in outstanding Tenneco issues suggesting that the deal may be close at hand.

Tenneco reported that its shareholders voted to approve the acquisition by Apollo at Tenneco's annual shareholders meeting on Thursday.

The acquisition, with an enterprise value of $7.1 billion, is expected to close during the second half of 2022.

Also on Thursday, Tenneco announced that Brian J. Kesseler, its chief executive officer, intends to vacate that position upon completion of the merger, with his role to be assumed by Jim Voss.

And the company announced Thursday that closing conditions, with respect to antitrust and/or foreign direct investment laws, have been satisfied or waived, making way for the merger to go forward.

In the meantime, Pegasus Merger has undertaken a change-of-control tender offer for $800 million of Tenneco's 5 1/8% senior secured notes due 2029 and $500 million 7 7/8% senior notes due 2029.

The early tender date is this coming Tuesday, July 12.

“They're dotting the I's and crossing the T's in a manner that suggests they're headed to market with a deal,” said the trader, who expects it to come as soon as that hoped-for window of opportunity opens.

The bond deal, if and when it comes, will face investor risk aversion on a scale not seen in the leverage markets since the recession that followed the subprime mortgage debacle and the catastrophic bankruptcy of Lehman Brothers in September 2008. Financial difficulties that followed in the wake took the rest of that decade to unwind.

The first half of the present year saw just $71.2 billion of high-yield issuance, representing the lowest dollar amount of issuance in a decade, and less than half of the $155.6 billion average amount of issuance for first halves of years going back to and including 2010, according to Prospect News data.

In addition to the proposed Pegasus/Tenneco bonds, dealers will seek to syndicate $2.4 billion of term loan debt, sources say, adding that the investment banks are hoping an issuance window will open before the end of July, and perhaps as early as the July 11 week.

BofA Securities Inc. is expected to lead the bond portion of the financing, with Citigroup expected to be on the left for the bank loan portion, sources say.

As reported, the debt commitment struck in March includes a $2 billion senior secured first-lien bridge loan and a $1 billion senior unsecured bridge loan.

Other funds for the transaction will come from $1.65 billion of equity.

Tenneco is a Skokie, Ill.-based designer, manufacturer and marketer of automotive products for original equipment and aftermarket customers.

© 2015 Prospect News.
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