(Bloomberg) -- A group of direct lenders led by HPS Investment Partners edged out Morgan Stanley to provide a $1.14 billion loan to Consolidated Precision Products Corp., helping the aerospace parts maker to refinance more than $1.5 billion of existing debt.
The company, backed by private equity firms Warburg Pincus and Berkshire Partners, also sold $750 million of preferred equity to help refinance debt and boost its cash holdings, according to people with knowledge of the matter.
For the direct debt, the lender group includes Oaktree Capital Management, KKR & Co., and Ares Management Corp., the people said, asking not to be identified discussing a private deal. The new loan, due Dec. 2029, pays interest of 6.75 percentage points over the Secured Overnight Financing Rate, the people said.
Representatives for HPS, Ares, Oaktree, and KKR declined to comment. Spokespeople for Morgan Stanley and CPP didn’t respond to requests for comment.
For the first three years of the loan, the company can delay payments on 50% of the 6.75 percentage point margin by paying interest with more debt, known as a payment-in-kind feature, the people said.
The flexibility to delay payments was one reason CPP’s owners chose the unitranche private debt over a syndicated loan, according to the people. CPP had tapped Morgan Stanley to lead the sale of a syndicated leveraged loan, and the bank had found enough investors to provide a loan of the same size and at similar pricing, the people said.
Ares led the preferred equity investment, with Warburg, Berkshire, and Davidson Kempner also buying. The preferreds yield around 15%, and also have a payment-in-kind feature. Spokespeople for Warburg, Davidson Kempner, and Berkshire Partners declined to comment.
The financing package closed last week, and also includes a $125 million revolver, the people said. The company is refinancing debt including around $1.2 billion of first-lien leveraged loans maturing in 2025, and about $356 million of second-lien loans.
Many junk-rated companies that need financing now are considering both public and private markets. Borrowing publicly, like in the syndicated loan or junk bond markets, is often cheaper, but the debt can be harder to customize, and exposes the borrowers to market swings that could increase the cost of financing. The biggest buyers of syndicated loans, fund managers that bundle that debt into collateralized loan obligations, are in many cases facing pressure to cut back on their purchases as they run out of time to reinvest their money.
A string of companies has chosen the private credit route recently, including PetVet Care Centers, Hyland Software Inc., Finastra Group Holdings Ltd. and Tecomet.
Warburg Pincus has owned at least part of CPP for more than a decade. Warburg, along with Berkshire Partners, recapitalized the company in 2019, according to a press statement. CPP manufactures specialized parts for use in the commercial aerospace, defense and industrial gas turbine markets.
--With assistance from Jill R. Shah.
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