Wed 01/26/2022 10:13 AM
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Leveraged Finance: Athenahealth

Relevant Item:
2030 Senior Notes Core Analysis

Athenahealth, which provides network-enabled services for healthcare and point-of-care mobile apps, is issuing $2.5 billion of unsecured notes due 2030 (the “Notes”) in connection with the company’s acquisition by Bain Capital and Hellman & Friedman (the “Acquisition”). Proceeds of the Notes, together with $5.75 billion of new term loan borrowings, $2.36 billion of preferred equity proceeds and a $6.16 billion sponsor investment, will be used to pay the purchase price for the Acquisition and to repay about $4.56 billion under an existing credit facility.

The Notes are expected to price this week.

Additional Reorg coverage of these Notes can be found HERE.

Athenahealth’s debt structure, pro forma for the Acquisition and associated transactions, including the issuance of the Notes, is summarized below:

A comprehensive report on the Notes is available HERE.
Notable Issues

Items of interest under the Notes include:

  • Huge priming debt capacity: The Notes potentially permit the issuer to incur over $16 billion (over 1,500% of adjusted EBITDA) of additional secured debt. This estimate assumes $5.75 billion of outstanding term loan debt is reclassified as ratio debt (which is not expressly prohibited), but even without such reclassification, the Notes would permit over $10 billion of secured debt (almost 1,000% of adjusted EBITDA). The estimate also includes approximately $4.4 billion under a basket permitting debt based on 200% of restricted payments capacity under most material restricted payments baskets. All permitted debt under the Notes can also be incurred on a structurally senior basis to the Notes by nonguarantor subsidiaries, secured by nonguarantor assets.

  • Significant value leakage risk: The Notes provide significant flexibility for dividends and transfers to unrestricted subsidiaries. A leverage-based Permitted Investments basket will be initially accessible at issuance. In addition, the Notes permit over $6.156 billion (570% of adjusted EBITDA) of initial investment capacity, of which approximately $1.46 billion (135% of adjusted EBITDA) could alternatively be used for dividends. Investment capacity includes approximately $4.4 billion under a basket permitting investments based on 200% of certain restricted payments capacity (which can also be used for debt).

  • “Voting Cap”: The Notes include a “Voting Cap” provision, under which no noteholder (together with its affiliates) can account for more than 20% of outstanding Notes for voting purposes, regardless of its actual holdings. However, the issuer is permitted to unilaterally increase this 20% cap for a particular noteholder without increasing the cap for others. We discussed this provision in detail HERE.

  • No merger covenant protection if CoC offer is made: If a sale of all or substantially all assets of the issuer triggers the change-of-control covenant and the required offer to repurchase the Notes at 101% is made, the merger covenant will not apply. This makes the change-of-control put compulsory as a practical matter, because a noteholder that does not accept the offer will be left with no credit support.

  • Leverage-based portability: No change-of-control offer is required if, pro forma for the change-of-control transaction, the issuer meets a 7.8x net total debt ratio or the net total debt ratio is not made worse by the transaction.

  • Post-IPO redemption: For a two-year period beginning in 2023, the Notes can be redeemed in full (but not in part) using an amount equal to the net cash proceeds from an IPO. The redemption price is not disclosed in the offering memorandum.

  • Covenant EBITDA may permit significant addbacks: EBITDA for covenant purposes can be increased using any adjustments used in the “Adjusted EBITDA” calculation set forth in the offering memorandum. These adjustments include an adjustment “to normalize for the impact of COVID.” EBITDA addbacks for 2021 increased EBITDA by approximately 40% ($310 million).

  • “Ratio Not Worse” leverage-based RP and investments baskets: The leverage-based investments and restricted payments baskets include “ratio not worse” tests, meaning that the test is satisfied if the applicable ratio would not be made worse, pro forma for the payment. Such a test allows the issuer - no matter how highly leveraged at the time - to transfer 100% of the equity of any subsidiary that generates negative EBITDA, because leverage would improve without the negative EBITDA contribution of the transferred subsidiary. Had PetSmart’s debt documents included this type of basket, the company could have transferred 100% of Chewy’s equity to an UnSub, because Chewy was generating negative EBITDA at the time of transfer.

  • Restricted payment capacity based on excluded asset sale proceeds: Builder basket capacity is increased by “Cumulative Retained Asset Sale Proceeds,” defined as asset sale proceeds that are not required to be applied to repayment or reinvestment under the asset sale covenant, based on carve-outs from the definition of “Asset Sale” or due to application of the leverage-based step-down provision. This provision may be particularly problematic in these Notes, since the asset sale covenant includes numerous provisions by which dispositions and proceeds can be excluded from its requirements.

  • UnSub actions not “indirect” restricted payments: The Notes expressly provide that unrestricted subsidiaries may use value transferred using permitted investment capacity to purchase debt or transfer value to equity, “and such purchase, acquisition, or transfer will not be deemed to be a “direct or indirect” action by the [restricted group].” This provision makes clear that such actions will not be deemed an “indirect” violation of the restricted payments covenant.

The covenant package under these Notes is one of the most aggressive we have reviewed in recent years. In addition to the provisions summarized above, there are numerous additional aggressive and off-market provisions discussed in our full report.
Flexibility Under the Notes

The company’s flexibility under the Notes is summarized below:

The following table summarizes the presence of certain material holder protections and material aggressive terms included in the Notes:

If you would like to request an Americas Covenants analysis of any other new bond offering, please submit the offering memorandum to us at

--Mitch Oates
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