ION Struggling to Raise Preferred Equity PIK After Lender Pushback; Company in Talks With Incumbent Lender HPS

Relevant Documents:
S&P Announcement on the Executed Merger
Moody’s Announcement
S&P Announcement

ION Group has approached several private credit funds to raise about €600 million of preferred equity with a PIK feature, however monthslong discussions with prospective lenders, including existing ones, have yet to bear fruit, sources said. The London-headquartered fintech group founded by Italian tycoon Andrea Pignataro is in talks with existing lender HPS Investment Partners but has also branched out to other private credit funds, after a number of potential lenders who were approached initially “put pens down” on the deal, the sources said.

The euro-denominated preferred equity PIK, a type of hybrid security, would rank above existing PIK issued to different ION divisions, and the instrument will be used to repay some of the PIK financing secured against one of ION’s divisions, the sources said. The debt raise comes after the group has merged and refinanced the debt of its three divisions – Markets, Corporates and Analytics.

The financial data and intelligence software company has a long-standing relationship with New York-based fund HPS Investment Partners, a key backer of the billionaire’s corporate acquisition spree.

The alternative lender provided a significant portion of the approximately $3 billion in private loans raised by various ION holding companies in recent years, as reported. In 2019, HPS and Goldman Sachs lent $1.25 billion to finance ION’s acquisition of financial intelligence provider Acuris, now part of its Analytics division. The debt was later refinanced by bonds and leveraged loans issued out of the Acuris units, as reported.

HPS has indicated it is willing to take a portion of the €600 million preferred equity PIK but has shied away from providing the entire amount, said one of the sources, citing the alternative credit fund’s already large exposure to the fintech group. The structure of the deal as well as ION and its owner’s reputation were among the reasons cited by potential lenders for declining to invest in the proposed transaction, sources noted.

In parallel, ION Group is planning to acquire a minority stake in TNB, a new Italian digital bank backed by private equity firm FSI SGR SpA and asset manager Azimut Holding SpA, as reported.

In June, ION executed the planned merger of ION Trading Technologies Ltd. (ION Markets), ION Corporates Solutions Finance Ltd. (ION Corporates) and I-Logic Technologies Bidco Ltd. (ION Analytics), as reported.

Octus’ Private Company Analysis and Covenants has published an opening credit analysis of the ION Group’s merger of its three platforms that can be seen HERE.

The ratings agency S&P assigned a B+ to the combined ION Platform, in line with the preliminary rating. Moody’s indicated a B2 rating to the proposed merger.

Octus reported in May that the unified platform is expected to generate over $2.3 billion in revenue and $1.7 billion in pro forma adjusted EBITDA, with margins north of 70% and recurring revenue making up more than 80% of the total.

The consolidation thesis centers on extracting around $160 million in synergies, reducing leverage by approximately 0.6x (to 5.7x from 6.2x) and rationalizing a complex capital structure. Following the merger, the unified business will serve over 8,000 clients globally across banks, governments and corporates, with no single client contributing more than 10% of revenue.

ION Group provides trading and workflow automation software, analytics and insights, and strategic consulting to financial institutions, central banks, governments and corporates, according to its website.

HPS Investment Partners and ION did not return a request for comment.

The group’s pre- and post-transaction capitalization is below:
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