Electronic Arts Bonds Land Tight of Price Talk in Highly Anticipated JPMorgan-Led Syndication; LBO Debt Financing Gathers $45B in Demand From Investors

After the launch last week of Electronic Arts’ large – and subsequently upsized – loan package, the video game developer announced its high-yield bond offering this week, with pricing tightening sharply within the tight one-day turnaround for commitments, reflecting strong demand for the paper.

EA’s deal was more than two times oversubscribed as of March 24, with $45 billion in the books, according to sources. Last week, the financing was covered at approximately $20 billion.

The U.S. senior secured note was downsized to $2.875 billion and priced at 7.25%, while the euro senior secured note was downsized to €1.08 billion, or $1.25 billion-equivalent, and priced at 6.25%, and the unchanged $2.5 billion in unsecured paper priced at 8.75%. All the bonds were priced at par.

On the loan side, EA’s U.S. term loan B was upsized to $6.125 billion, and the euro loan was also upsized to €1.725 billion, or $2 billion-equivalent, with pricing coming tighter at SOFR+350 bps and E+350 bps, respectively, and 98.5 OID.

Pricing was attractive on both the dollar and euro secured paper, with the pricing on the euro notes about 25 bps more appealing than the dollar tranche, according to one European buy-sider. He said the pricing was just about at fair value and added that he did not see a lot of new issue premium on it, likely reflecting the strong demand.

Several buy-siders said they expect the bonds to do well on the break, noting the strong demand for the deal. European investors noted the firm’s decent cash generation and said they took comfort in the large equity injection from the sponsors. They also said that EA’s plans to find cost savings by leveraging AI could help margins – if they come to pass – with one buy-sider believing in the firm’s plans to boost ad revenues in-game.

But they raised questions about how the notes would fare over the medium term, flagging several areas of concern, including management’s lack of experience dealing with such a large amount of debt, and the impact of a weaker macro environment and spending on in-game micro-transactions, which make up the bulk of EA’s revenues. One buy-sider also raised concerns about the potential for new regulation in Europe on so-called “loot boxes” – in-game transactions of mystery items, which have been compared to a form of gambling.

One U.S. high-yield bond investor said that with the primary market’s recent volatility and increased investor caution, EA’s deal feels relatively safe because of the large anchors involved.

The record $55 billion leveraged buyout of EA takes the publicly listed company private via a consortium made up of Saudi Arabia’s Public Investment Fund, Silver Lake and Jared Kushner’s Affinity Partners.

The consortium’s deal includes $36 billion in equity, along with $18 billion in new debt. This includes the term loan Bs, commitments for a $3.25 billion term loan A (launched in late January), the upsized $8.125 billion-equivalent term loan Bs, $4.125 billion-equivalent in secured debt and an additional $2.5 billion unsecured bonds. It has also received commitments for a $500 million unfunded RCF as part of the financing, according to sources.

The transaction will transform EA’s balance sheet from a near-unlevered investment-grade credit, carrying less than 1x gross leverage pre-transaction, to a highly levered sub-investment-grade capital structure with pro forma total gross and net leverage of approximately 6.8x and 6x, respectively, based on LTM adjusted EBITDA. Read more of Octus’ primary analysis of the deal HERE.

EA is marketing the deal at gross and net leverage of 5.3 and 4.7x, respectively, based on a pro forma LTM adjusted EBITDA of $3.4 billion that includes approximately $400 million of unrealized pro forma cost savings among $300 million of other pro forma addbacks.

Another U.S. investor flagged the deal’s leverage as a potential factor for the deal’s final pricing. The investor also said how the deal performs in the secondary market will be interesting, given the weakness in recent trading sessions for deals that were considered higher quality.

Despite the twin shocks to public debt markets from the AI-driven disruption to the software-as-a-service sector and the outbreak of the Iran war, investors noted last week that they expected the JPMorgan-led deal to get over the line and be well received, given the relatively attractive pricing for its B1/BB- rating and EA’s strong back catalog of brands including “Battlefield,” “Madden NFL,” “EA Sports FC” and “The Sims.”

EA’s deal was the most topical deal at JPMorgan’s recent flagship leveraged finance conference in Miami, with the bank previewing the offering to investors. The deal, as well as a debt financing package for software firm Qualtrics, were widely discussed at the conference, while dealmaking took a pause amid market volatility.

Bank of America, Barclays, BMO, Citi, Deutsche Bank, KKR, Morgan Stanley, RBC, BNP Paribas, HSBC, Jefferies, Mizuho, MUFG, Santander, UBS, Wells Fargo, Citizens, Scotia and Stifel are bookrunners on EA’s deal.

A pro forma capital structure for EA is shown below:
 

EA’s 7.25% 2033 secured notes were trading in the secondary today, March 24, at a price of 102.25 to yield 6.84% while its 8.75% 2034 unsecured notes were trading at a price of 103.31 to yield 8.18%, according to MarketAxess.

Octus Covenants’ legal analysts have completed an analysis of the documentation for EA’s deal, which can be found HERE. Octus’ private company analysis of the deal can be found HERE.

JPMorgan declined to comment.