BlackRock facility: EUR 150M at 7.25% to 8%

At TSG we still bank with UBS on a small- to medium-sized business banking relationship. We get credit lines with very down-to-earth covenants. With my hobby project theserialacquirer.com I started to compare our small, tourism-focused vertical serial acquirer to some of our much larger peers in the market. Here we go.

Everfield got a debt facility from BlackRock for EUR 150M, of which 104M was drawn, variable over Euribor (7.25% to 8%) - based on their published 2024 group accounts. Aquiline as their sponsor definitely played an important role in facilitating the BlackRock facility. Covenants are hard to get, so we don't know.

Constellation Software bought a business called Optimal Blue in September 2023 and in essence lets the acquisition target pay for itself: USD 200M in cash plus a USD 500M vendor note at 7% fixed, compounded annually, maturing on 5 September 2063. Fantastic deal. Who underwrites something like that? Sounds like a great deal for Constellation Software.

The highest interest rates I saw came from Hawk Infinity AS, with ranges in NOK between 8.7% and 11.2%, NIBOR as the reference (2024 numbers, shown all-in at assumed reference rates). Hawk is definitely aggressive with regard to debt usage: Net Debt to Revenue at 2.75x including lease liabilities, and roughly 20% of revenue (not EBITDA, revenue) goes to paying interest.

The Hawk-specific covenants I could find are a minimum liquidity of more than NOK 50M and an incurrence leverage cap of 4.5x. My analysis was based on 2024 numbers in the case of Hawk; I am sure those have changed again given their very high growth level.

I did try to calculate some sort of WACC, although it is more a direction than anything else. The range of WACC I got was between 9.2% and 11.1%. I guess we all agree that the expectation around hurdle rates in our market is somewhere between 20% and maybe 25%.

In the simple model I applied, WACC barely moved even though the debt weights ranged from 16% to 70%. I did adjust for the higher risk with higher costs of equity capital (assumed). If you then look at the range of WACC, the difference is not that big - the only advantage was for the ones making profits, who had a tax benefit (tax deduction on interest). This is assumption-based and potentially not correct.

For me as a serial acquirer myself, it is interesting to understand a range of interest rates. As I wrote above, we bank with UBS in CHF and our interest rates are much lower, but that makes it hard to compare. If we wanted to increase our debt facility, we might have to talk to different types of debt providers or banks, and that might increase our interest rates. Also CHF is different to EUR and USD.

The covenants unfortunately are not clear to me - if someone in the community has insights and is allowed to share them, please let me know. I also assume none of us could approach BlackRock directly that easily; for that you need an experienced sponsor like Aquiline. Constellation, Chapters, Hawk and TeamSystem have publicly listed bonds with ISIN numbers.

Risk appetite is another one - I do not see us running a 70% debt weight (on a book basis) like Bending Spoons does.

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