NEW YORK, Aug 11 (Reuters) - Technology insurance company Asurion has issued an extensive 59-page blacklist document that bars 5,681 entities from joining a $2.73 billion leveraged loan in a bid to stop its private information from potentially falling into the hands of rivals, sources said.
Companies from countries including Finland, Mexico, South Korea, England, Brazil and the U.S., with businesses ranging from sensor technology to appliance manufacturer, were disqualified by Asurion, along with brands such as Apple, Visa Inc and Amazon.com Inc.
Blacklists have been used since the 1990s in the private $840 billion U.S. leveraged loan market, which provides financing to non-investment grade companies, to restrict private information and keep out investors that have been difficult in past deals. Asurion's blacklist is among the most extensive and exhaustive to date, and their use is increasing. Eighty-eight percent of U.S. leveraged loan credit agreements included disqualified-lender language in July, an increase from 71.1 percent in June, according to Xtract Research.
Lengthy blacklists can allow borrowers "to keep out of their facility those entities they don't want to participate, either because they want to safeguard what they deem confidential information from competitors or they keep out other entities they think may cause mischief," Charles Tricomi, a covenant analyst at Xtract Research in Westport, Connecticut, said in an interview.
Nashville, Tennessee-based Asurion raised a $2.73 billion first-lien term loan and a $450 million add-on to its existing second-lien term loan in July, sources said. An Asurion spokesperson and a spokesperson for Bank of America Merrill Lynch, the lead arranger of the loan, did not return telephone calls seeking comment.
Asurion is indirectly owned by NewAsurion Corp, whose ownership includes Madison Dearborn Partners, Providence Equity Partners, Welsh, Carson, Anderson & Stowe, Berkshire Partners, the Canadian Pension Plan Investment Board and company management, according to a July 22 Moody's Investors Service report.
"There is sensitivity among borrowers about leakage of proprietary information to competitors, as well as concerns about the long-term strategic motivation of a non-traditional lender," Mats Carlston, co-chair of Winston & Strawn's finance practice in New York, said in an interview. "Vulture funds with a loan-to-own strategy are, of course, the classic disqualified lender."
Borrowers are also sensitive about private-equity firms that own rival companies accessing their information.
Staffing firm On Assignment barred 12 firms including competitors Insight Global and Select Staffing Service from participating in its $975 million financing backing its acquisition of Creative Circle earlier this year, sources previously told LPC. Houghton Mifflin Harcourt and Horizon Pharma are among several other companies this year whose leveraged loan documentation includes disqualified-lender language, according to Xtract.
While blacklists work for borrowers, investors say limiting the number of potential buyers can hurt liquidity, which is currently on regulators' agenda. The U.S. Securities and Exchange Commission is updating some of its rules regarding registered funds and is considering making changes to liquidity management rules.
"Bank loan funds are just one example of new types of funds that may require further examination as we consider updating our liquidity rules," SEC Commissioner Kara Stein said in a June 15 speech.
"If it takes over a month to settle, it is reasonable to wonder how the fund could possibly meet the seven-day redemption requirement in the Investment Company Act in times of market stress," she said.
The average loan settlement time of 19.3 days in the second quarter, according to Markit data, is far higher than the seven days recommended by the Loan Syndications & Trading Association (LSTA). Bond transactions settle in three days.
"From a company perspective, you want to keep your information to yourself," Jessica Reiss, an analyst at Covenant Review in New York, said in a telephone interview. "For a lender, you want to be able to assign the loan to as many people as possible because that's liquidity and you want to be able to buy and sell."
If blacklisted companies are competitors and do not invest in leveraged loans, it likely wouldn't be a "big issue" for liquidity because a holder wouldn't transfer a loan to that institution anyway, Reiss said.
Companies also blocked from joining Asurion's loan includes retailers Sears Holding Corp, Target Corp, Home Depot Inc and eBay Inc, sources said. They are joined on the list by Japanese electronics companies Sony Corp and Panasonic, sources said.
"If a company is operating in all of these jurisdictions, they would want to make sure someone doesn't inadvertently transfer the loan to a competitor," Reiss said. Because the market "is so global in nature, the company is just trying to protect their private information." (Editing By Tessa Walsh and Jon Methven)