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LPC: McAfee's US$4.75bn pre-IPO loan to finance dividend

From Reuters - September 15, 2017

NEW YORK, Sept 15 (Reuters) - US software security firm McAfee LLC is raising US$4.75bn of new leveraged loans to finance a dividend payment of around US$2bn and refinance existing debt as the company prepares for an Initial Public Offering (IPO) as soon as next year, sources familiar with the deal said on Thursday.

McAfee, which is owned by private equity firm TPG Capital (51%) and computer hardware giant Intel (49%), is raising loans, which are more flexible and easier to repay than bonds as it discusses a 2018 equity listing with banks, a source close to the deal said.

The US$4.75bn of loans will refinance US$2.2bn of debt that financed McAfees spinoff from parent Intel, which was completed on April 3. The dividend payment of around US$2bn is one of the largest dividend payments on record, according to Thomson Reuters LPC data.

The deal brings the total volume of dividend recapitalizations this year to US$11.3bn, compared to US$24.4bn in 2016, the data shows.

Intel provided the initial financing for the spinoff with promissory notes due to the complexity of the deal and the absence of audited financials, which are generally required for agencies to rate companies debt. The notes paid a relatively high interest rate of 7%.

McAfee completed its audits in July, two sources said. Strong debt markets and the companys relatively low adjusted leverage are now allowing McAfee to raise the loan, which is new money for the company, and will reduce its borrowing costs substantially as well as paying the dividend to shareholders.

Although McAfees financing is being marketed as a dividend deal, its pre-IPO financing is not a traditional recapitalization. Intels initial provision of McAfees debt means this is the first time investors will be gaining exposure to the company.

The US$2bn dividend payment will also partly refinance some of the equity that TPG used to buy the company, a senior banker said.

GOING VIRAL

The US$4.75bn in loans include a US$3.05bn first-lien term loan, a 375m (US$450m) first-lien term loan, a US$750m second-lien term loan and a US$500m multi-currency revolving credit facility. Morgan Stanley is leading the first-lien debt while JP Morgan is leading the second-lien loan.

A euro tranche was added during syndication allowing McAfee to broaden its currency exposure after reverse enquiry from European investors, a person familiar with the matter said.

NO MORE FIREWALL

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