New Coverage: Dun & Bradstreet Debt Documents Provide Company With Significant Flexibility to Incur Debt, Make Dividends and Investments

Relevant Items:
Covenants Tear Sheet, Debt Document Summaries
Dun & Bradstreet’s Debt Documents

Dun & Bradstreet provides business data and analytics to over 200,000 customers worldwide, with about 40% of its revenue coming from its sales and marketing division and 60% from its finance and risk division. The company was taken private in February 2019 by a group of investors including Bilcar, Cannae, Black Knight, CC Capital Partners and Thomas H. Lee Partners. Dun & Bradstreet completed an IPO on July 6, 2020, pursuant to which it received net proceeds of almost $2.5 billion.

Its 2021 fiscal year ended on Dec. 31, 2021, with annual adjusted EBITDA up 19% compared with the year ended Dec. 31, 2020.

On Jan. 18, 2022, the company incurred $460 million of incremental term loans, which it used to redeem in full its secured notes due 2026, which could be redeemed at a price of 103.438% starting Feb. 15, 2022. The company’s capital structure, pro forma for this transaction, is shown below:

 

 

• Springing financial covenant - In the credit agreement, if revolver usage exceeds 35% of commitments, the company’s first lien net leverage ratio may not exceed 6.75x. This covenant only benefits the revolving lenders; equity cures are permitted.
  
  The covenant was not tested as of Dec. 31, but if it were the company would have been in compliance with a first net leverage ratio of 4x.


• Debt and lien capacity - On a pro forma basis, if it wants to maximize its first lien debt capacity, the company can incur at least $3.763 billion of first lien debt, plus $2.132 billion of junior lien debt, plus $465 million of nonguarantor debt, and unsecured debt until the fixed charge coverage ratio hits 2x. Alternatively, if the company wants to maximize its structurally senior debt capacity, it can incur at least $5.552 billion of structurally senior debt.
  
  The credit agreement permits incremental or incremental equivalent debt in an amount equal to the greater of $740 million and 100% of EBITDA, plus additional amounts in compliance with a (i) 4x senior secured net leverage ratio, if such debt is pari, (ii) 5.2x senior secured net leverage ratio, if such debt is junior lien debt, and (iii) a 5.7x total net leverage ratio or a 2x interest coverage ratio, if such debt is unsecured. The “senior secured leverage ratio,” however, only includes debt secured by the collateral on a pari basis with the credit agreement obligations and does not include any junior lien debt. This means that the 5.2x senior secured leverage ratio basket for junior lien debt actually permits unlimited junior lien debt, as long as the company is in compliance with a 5.2x first lien leverage ratio.
  
  Other credit agreement baskets include a general debt basket for the greater of $295mm and 40% of EBITDA and a general liens basket for the greater of $220 million and 30% of EBITDA. Secured debt can also be incurred using the “Available Amount,” which has a $250 million starter basket and includes the $2.249 billion of IPO proceeds the company received from its July 2020 IPO.
  
  Note that instead of using the IPO proceeds to incur additional secured debt with the Available Amount, the company could alternatively use such proceeds pursuant to a 200% contribution debt basket. This debt cannot be secured by loan party assets but can be secured by nonguarantor assets and would provide the company with significant structurally senior debt capacity.
  
  The senior notes contain a ratio debt basket that permits the company to incur debt as long as either (x) the fixed charge coverage ratio is greater than 2x or (y) the total net leverage ratio is not greater than 5.7x. This basket can be paired with a general liens basket for the greater of $245 million and 30% of EBITDA and/or with a leverage liens basket that permits liens as long as the secured net leverage ratio is not greater than 4.9x.
  
  Secured debt can also be incurred using a general secured debt basket equal to the greater of $325 million and 40% of EBITDA and using a credit facilities debt basket equal to the sum of $3.53 billion, plus the greater of $810 million and 100% of EBITDA, plus an additional amount such that the secured net leverage ratio is not greater than 4.9x. Although credit agreement debt outstanding on the 2029 notes issue date is deemed incurred under the credit facilities basket, the notes do not restrict the company from reclassifying that debt under other baskets.
  
  Unlike the credit agreement, the notes do not provide additional debt capacity using IPO proceeds, as their 200% contribution debt basket looks back to their issue date (December 2021) and the builder basket cannot be used for debt capacity.


• Earlier maturing debt - The credit agreement provides that up to $350 million of incremental debt, up to $350 million of incremental equivalent debt and up to $350 million of acquisition debt may mature ahead of the initial term loans, and does not aggregate such amounts. Dun & Bradstreet can therefore incur up to $1.05 billion of earlier maturing debt, and although this debt would be secured on a pari basis with the term loans, it could have more favorable repayment terms given its earlier maturity.


• Restricted payments, investments - Given its pro forma net leverage ratio of 4.35x as of Dec. 31, Dun & Bradstreet is not restricted from accessing its leverage-based restricted payments and investments baskets under its debt documents. Both the credit agreement and the senior notes permit restricted payments if the total net leverage ratio is not greater than 4.4x and there is no event of default, and both permit investments if the total net leverage ratio is not greater than 4.5x. Because the leverage ratios permit full cash netting, however, any cash used to make restricted payments or investments will increase the pro forma leverage ratios, and the company is very close to hitting the 4.4x threshold.
  
  Even without the leverage baskets, the company has significant restricted payments capacity. The credit agreement Available Amount permits at least $2.499 billion of restricted payments, and a general basket and post-IPO basket add another $831 million of dividend capacity. The credit agreement also provides investment specific capacity of over $1.1 billion pursuant to general investment baskets and baskets to invest in similar businesses and joint ventures/unrestricted subsidiaries, providing a total of just over $4 billion of capacity for transfers to unrestricted subsidiaries.
  
  The IPO proceeds may be available to make restricted payments under the notes, depending on whether such proceeds were contributed to the issuer, the Dun & Bradstreet Corp. Even without such amount, the notes permit at least $1.08 billion of dividends using the builder basket starter amount, a general basket and a post-IPO basket. Investments have $868 million of additional capacity pursuant to a general investment basket and baskets to invest in similar businesses and joint ventures/unrestricted subsidiaries, providing the company with $3.7 billion of total capacity to invest in unrestricted subsidiaries.


• Senior note purchases - Because the prepayment covenant in the credit agreement only limits Dun & Bradstreet’s ability to prepay payment subordinated debt, the company is not restricted from purchasing its senior unsecured notes in the open market ahead of the initial term loans.


• Credit agreement amendments - In the credit agreement, amendments to the pro rata sharing provisions and amendments that result in lenders’ liens being subordinated only require consent from a majority of lenders.
  
  The former will allow Dun & Bradstreet to conduct coercive exchanges similar to those previously consummated by J.Crew and PetSmart, and the latter could allow the company to pursue superiority uptier exchanges similar to those consummated by Serta Simmons, Boardriders and TriMark, as the company can purchase its term loans in the open market.

--Alisha Turak