BMC PIK bond upsized to $750m

The upsized issuance will reduce equity in BMC Software to less than 7 percent.

Payment-in-kind (PIK) toggle notes issued by Boxer Parent Company, the holding company of US enterprise software and services provider BMC Software, were upsized on Tuesday due to strong investor demand, a spokesman for the company told Private Debt Investor.

The original target of $500 million was upsized to $750 million and the proceeds used to finance a distribution to private equity owners led by Bain Capital and Golden Gate Capital. Those firms, along with GIC Special Investments and Insight Venture Partners, bought BMC Software for $6.7 billion last year. The sponsors contributed $1.242 billion of equity at the time of the deal, which closed in September 2013.

The upsizing of the initial target offering of $500 million notes due 2019 will reduce the equity to significantly less than 7 percent, IFR noted. Bloomberg said total debt at the parent company now stood at $6.2 billion of loans and bonds outstanding.

The notes priced at 99.50 with a cash coupon of 9 percent and a PIK coupon of 9.75 percent.

As a result of the issuance, rating agencies S&P and Moody’s downgraded yesterday the rating on BMC Software. The lowering of the corporate credit rating on BMC from B+ to B reflects its “highly leveraged” financial profile, S&P said. “Pro forma debt to EBITDA will be above the 7x area and free cash flow to total debt will be in the mid-to low-single-digit area,” the agency said.

Moody’s downgraded the firm’s corporate family rating from B2 to B3, “driven by the distribution to owners and increase in debt shortly after closing the LBO while a restructuring is still underway,” it said.

Moody’s continued: “As a result of the distribution, the effective amount of equity is reduced to approximately 7 percent of total capitalization (depending on the final size of the proposed notes and distribution) from an already low 17 percent at close of the buyout in September 2013,” significantly below the 30 to 40 percent LBO equity contribution benchmark.

However, both observed that the firm had good cash flow generation capabilities. The notes were rated CCC+ and Caa2 by S&P and Moody’s respectively.

A spokesman for BMC Software told Private Debt Investor: “The proceeds [of the PIK senior notes] will be used to issue a dividend to our financial sponsors, and to pay fees on the debt. This one-time dividend balances an appropriate return to these shareholders that is commensurate with their commitment of resources to the business with maintenance of a solid balance sheet.  BMC will continue to reinvest in the business to grow, bring in additional talent, invest in our product portfolio, and refresh our offerings with transformational new releases and strategic additions.”

Golden Gate declined to comment. Bain Capital had not responded to a request for comment at time of going to press.