In a piece that Barron’s published today, Alexandra Scaggs explains the lush bond and loan package used to finance Blackstone’s mammoth $17 billion LBO of Thomson Reuters, which will be renamed Refinitiv:

Refinitiv’s private-equity buyers say that the leveraged buyout will leave the company with net debt that is 5.2 times the size of its earnings before interest, tax, depreciation and amortization (Ebitda). But investors say that figure is optimistic. They point to a clause buried in a sub-footnote of the offering documents, which explains that the Ebitda figure includes $650 million of cost savings that aren’t expected to be realized until “the end of the third fiscal year” after the deal is completed. Without that $650 million, the leveraged buyout will leave the company with debt 7.2 times its Ebitda for the year ended June 30, and 7.7 times Ebitda for the year ended Dec. 31.

Bond analysts have squawked at the loose covenants:

[T]wo investors said what they viewed as the worst terms in the preliminary debt contracts were left unchanged.

One of these provisions allows Refinitiv’s private-equity owners to pay themselves dividends in scenarios where a normal contract would not allow such a payment, according to Covenant Review analyst Scott Josefson. He estimated that Blackstone and the other sponsors could pay themselves $2 billion in dividends on the day of the deal under the preliminary debt documents. The covenants could also permit the owners to pre-pay unsecured bonds before the secured debt, which would normally come first, he wrote in a note.

But the offering was oversubscribed.

 

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