The acquisition takes Apax’s ownership of Trader Media, the owner of the Auto Trader car sales website, to 100 percent. It paid Guardian Media Group around 600 million pounds, valuing the whole company at 1.75 billion pounds.
A 358 million pound payment-in-kind (PIK) toggle, that will sit at a holding company level, funded the acquisition. It was underwritten by Goldman Sachs and privately placed with a Goldman Sachs mezzanine fund.
Goldman Sachs was not immediately available to comment.
The PIK toggle note is one of the largest of its kind following a 350 million pound PIK toggle for British motoring services firm the AA.
PIK toggles are risky instruments because of their deep subordination and low recovery rates in the event of a borrower default. They have seen a comeback in Europe as cash-rich investors look for higher yielding debt following a dearth of new deals in 2013. A PIK toggle typically requires borrowers to pay interest in cash only if their business is performing well.
At the same time, lenders to Trader Media have been asked to approve amendments to the company’s existing debt. JP Morgan is running the process.
Apax bought a 49.9 percent stake of Trader Media from GMG in 2007, backed with an 835 million pound leveraged loan. In 2011 the owners raised an extra 150 million pound loan to take a dividend from the company.
Existing lenders are being asked to allow for an increase in Trader Media’s leverage. The holdco PIK toggle takes leverage in the company to 7x, higher than the 6x currently allowed on a guaranteed basis under existing documentation.
The amendment will also put in place an extra interest margin ratchet which means lenders will be paid an extra 25 basis points, so its term loan B2 will now pay 425 bps and its term loan B3 will now pay 525 bps, if leverage exceeds 5.5 times. Lenders have until February 5 to agree to the amendment.
Existing lenders have also been offered a chance to extend their debt to 2017 from 2015, if they didn’t already do so during a previous extension request in 2011 at the time the dividend was taken. Lenders have until February 18 to extend.
Claire Ruckin is a reporter for Thomson Reuters LPC in London