Elliott Snaps Up Risky 12% Dividend Debt in Latest Credit Move

Elliott Investment Management has scooped up several struggling buyout loans in the past few months, and now it’s also turning its eye to risky debt offerings that pay sponsors chunky payouts.

(Bloomberg) — Elliott Investment Management has scooped up several struggling buyout loans in the past few months, and now it’s also turning its eye to risky debt offerings that pay sponsors chunky payouts. 

In late December, the investment firm bought significantly more than half of a $415 million leveraged loan by McAfee Enterprise LLC with a 12% coupon that paid private equity sponsor Symphony Technology Group LLC a large dividend, according to people with knowledge of the matter. 

The deal was unusual because of its timing and purpose. Most banks and borrowers were holding off on bringing new deals after a rocky year, and also because proceeds were used to add more debt onto the cybersecurity software business.

Symphony reached out to a small group of potential investors in early December, and originally aimed to sell a roughly $300 million loan but increased the size thanks to demand for the debt, the people added. The exact amount Elliott purchased couldn’t be determined.

About $50 million of the proceeds added cash to the company’s balance sheet, and the rest was paid out as a dividend to its owners including Symphony, according to a report by S&P Global Ratings.

The deal was structured as an add-on to an existing $3.175 billion floating-rate loan with a margin of 475 basis points over the London interbank offered rate. But the new deal instead had a fixed 12% coupon and investors bought the debt at an undisclosed discount, meaning the all-in yield was higher, the people said. 

The new debt was non-fungible with the existing loan, meaning it will trade as a separate piece of debt, the people added. At the time the deal priced, the new loan was quoted at around 91.5 cents on the dollar, they said. 

McAfee Corp. spun off its enterprise cybersecurity business called McAfee Enterprise in July 2021 to a consortium led by Symphony Technology Group, which then combined the business with cybersecurity firm FireEye in October of that year. The company now has two segments under the names Trellix and Skyhigh Security, according to S&P.

A representative for Elliott declined to comment. Representatives for Jefferies Financial Group Inc, which led the loan deal, and Symphony Technology Group didn’t immediately respond to requests for comment.

Elliott Deals

The December dividend deal is the latest big-ticket Elliott credit investment snapped up at a discounted price and attractive yield.

The firm doubled-down on two of its own equity investments by buying $1 billion of junk bonds helping to finance its buyout of software company Citrix Systems Inc. in September, and a portion of a $2 billion junk bond deal supporting its take-private of TV ratings business Nielsen Holdings in November.

Outside of its own equity deals, Elliott also recently bought a portion of the junk debt underpinning the buyout of Unilever PLC’s tea business by CVC Capital Partners known as Ekaterra.

Symphony Technology Group’s dividend deal is unusual in a market struggling with volatility and depressed prices. Dividends are considered detrimental for lenders, because the process takes money out of the company, and investors demand high interest rates to take on the risk. 

Volatility rocked the leveraged loan market throughout the last year due to inflation, recession fears, and geopolitical risk following Russia’s invasion of Ukraine. Secondary prices have remained subdued for months amid a risk-off tone and currently trade at around 92.7 cents on the dollar, according to the Morningstar LSTA US Leveraged Loan Index.

Most loan deals in the latter part of 2022 came to market because they needed to get done while companies otherwise sat on the sidelines. Borrowers with near-term maturities tried to refinance debt, and banks attempted to sell down some of the financing they had committed to provide for acquisitions before borrowing costs increased. Banks have pulled back on lending, and private credit firms are also getting pickier as downturn fears intensify, leaving fewer options for borrowers.

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