(Bloomberg) -- K2 Insurance Services sold a bigger-than-planned leveraged loan as the firm cuts borrowing costs on buyout-related financing by three percentage points.
The margin for the specialty insurer’s $535 million seven-year loan is 3.75 percentage points above the Secured Overnight Financing Rate, according to a person with knowledge of the matter who asked not to be named discussing a private transaction. The deal size was initially set at $500 million before being increased Thursday. The loan was issued at 99.5 cents on the dollar.
The loan is expected to fund a shareholder distribution and refinance a $440 million direct loan due 2030 that helped finance K2’s acquisition by Warburg Pincus, Bloomberg previously reported. That private credit loan, provided by a group of lenders including JPMorgan Chase & Co. and HPS Investment Partners, has an interest rate of 6.75 percentage points over SOFR. JPMorgan led the new term loan.
K2 is the latest company to lock in interest savings by using the leveraged loan market to refinance private credit debt. Direct loans are typically more expensive for borrowers because of a so-called illiquidity premium from investors usually being unable to trade the debt and fewer lenders being involved. The private credit and leveraged loan markets regularly compete to win transactions.
Leveraged loan issuance has been running at a record pace this year, with activity fueled by loan repricings and refinancings. While most transactions have seen strong demand from the market, a few deals have struggled. A proposed refinancing of private-credit debt borrowed by Alegeus Technologies in the broadly syndicated market was pulled Thursday after previously hitting roadblocks.
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