Lakemont Specialty Chemicals

Company overview

Lakemont Specialty Chemicals is a sponsor-owned maker of industrial adhesives, sealants and specialty resins. It has agreed to buy Corvane Coatings, a coatings producer with complementary customers, for $1.1bn. The deal must close within 60 days of signing, before permanent financing can be put in place, so Lakemont is asking for a $700M senior secured bridge loan.

The bridge is meant to be repaid in two steps. First, Lakemont has signed an agreement to sell its non-core resins division to a strategic buyer for $450M in cash. The sale needs antitrust clearance; the buyer has said it expects a decision within six to nine months, but a second request from the regulator would add several months. Second, once combined audited financials are available, Lakemont plans to issue $300M of senior secured notes to repay the rest of the bridge and add cash.

The bridge ranks pari passu with Lakemont's existing $500M first-lien term loan. Interest steps up every quarter it stays outstanding, duration fees are charged at months 6, 12 and 18, and two six-month extensions are available if extension tests are met. About six months of interest is held in a reserve at closing.

The IC question: how likely is the take-out, and how soon; what does the lender own and earn if it doesn't happen; and do the step-ups and extension tests push the borrower to refinance rather than leaving the lender holding a long-term loan?

Your memo should answer

1. 01Would you provide this bridge on these terms? State your recommendation and the conditions or changes you would require.
2. 02How likely and how soon is each part of the take-out, and what happens to the lender if one part fails or is late?
3. 03What does the bridge cost the borrower if it is repaid on plan, at 12 months, and at 24 months, and does the interest reserve cover the carry?
4. 04Build a downside: the sale is blocked, the bond market is closed and EBITDA falls 15%. What happens to leverage, the extension tests, value coverage and the lender's options?
5. 05Where does the bridge rank against the existing term loan and the planned notes, and what risks does that create in a partial take-out?
6. 06Is the pricing enough for the risk, and what would you change in the terms?

Financials ($M)

Term sheet

Facility

$700M senior secured bridge term loan, fully drawn at closing; pari passu with the existing $500M first-lien term loan

Maturity and extensions

12 months, plus two 6-month extensions at the borrower's option if the extension tests are met (24 months maximum)

Pricing

SOFR + 450 bp, stepping up 50 bp each quarter in the first year (to +600 bp), then +675 bp in the first extension and +750 bp in the second

Fees

1.5% funding fee at closing; duration fees of 0.50%, 0.75% and 1.00% of the outstanding balance at months 6, 12 and 18

Interest reserve

$31M funded at closing, about six months of interest

Mandatory prepayments

100% of net proceeds from the resins sale, any debt issuance and any other asset sale

Extension tests

No default; total leverage at or below 4.25x on LTM combined EBITDA; resins sale agreement still in effect or a bond launch in progress; extension fee paid

Pricing context

Sponsor-backed acquisition bridges recently priced at SOFR + 400 to 550 bp with similar step-ups; secured notes for BB-rated chemical companies at about 7.5–8.5%

Sources and uses at closing ($M)

Uses: purchase of Corvane Coatings

1,100.0

Uses: fees and expenses

40.0

Uses: interest reserve

31.0

Total uses

1,171.0

Sources: bridge loan

700.0

Sources: sponsor equity

300.0

Sources: balance-sheet cash

171.0

Total sources

1,171.0

Take-out plan

Step 1: resins division sale

$450M cash from a strategic buyer under a signed agreement; no financing condition; $25M reverse termination fee if antitrust clearance fails; outside date 12 months after signing

Antitrust timing

Buyer expects clearance in 6–9 months; a second request typically adds 4–6 months

Step 2: senior secured notes

$300M planned once combined audited financials are available (about month 9–10), market permitting

Fallback

If the sale fails, the full $700M would need to be refinanced with notes or a term loan

Capital structure and leverage (on LTM Jun-26 EBITDA)

At closing: existing term loan + bridge

$1,200M total debt; 3.87x combined EBITDA of $310M

After the planned take-out

$800M total debt (term loan + notes); 3.11x EBITDA excluding resins of $257M

If the sale fails and all $700M is refinanced

$1,200M total debt; 3.87x combined EBITDA of $310M

Illustrative enterprise value at 8.0x combined EBITDA

$2,480M; total debt is 48% of value at closing