Apollo Global Management LLC made its most significant move yet to encroach on a corner of finance long dominated by Wall Street banks.
The private equity firm agreed to provide nearly $1.8 billion of debt financing to support New Media Investment Group Inc.'s acquisition of Gannett Co., in a deal that will bring USA Today and over 200 other publications under the same roof.
The loan is the largest direct-lending commitment ever undertaken by Apollo and one of the biggest ever arranged outside of Wall Street to finance a corporate takeover, according to a person familiar with the matter who asked not to be named because the details are private.
New Media also had bank financing available for the acquisition, but the debt provided by Apollo ended up being more attractive, another person said. Structured as a five-year senior secured term loan paying an interest rate of 11.5%, the loan would make Apollo the combined company's only major creditor.
The deal underscores the inroads private equity firms and other direct lenders are making in originating corporate loans, often in competition with traditional investment banks. Apollo has the largest credit-investing business among its private equity rivals, with around $200 billion under management as of the end of June.
Transactions of this size are typically financed in the broadly-syndicated loan market, where groups of banks arrange deals and distribute them to institutional investors. But direct lenders have become an attractive alternative for companies seeking to secure financing quickly, especially during times of increased volatility in public markets, even though they often charge higher interest rates.
Unitranche loans like Apollo's, which meld first-priority and subordinated claims into one, have grown in size and popularity in recent years, as investors such as pension funds and insurance companies pour hundreds of billions of dollars into private debt funds. They are attractive for lenders because they don't divide creditors into different classes, making any negotiations with the company -- and restructurings -- easier.
Proceeds from the Apollo loan, which can be prepaid with no penalty, will be used to fund the cash component of the purchase price as well as to repay New Media and Gannett's existing debt, the companies said in a statement.
Total debt at closing will be equivalent to 3.5 times a measure of earnings for the combined company. Management said it expects to achieve $275 million to $300 million of annual costs savings, which would bring that ratio to around 2.3 times. Executives expect to realize the vast majority of those savings within two years of closing.