Nesco shops bond deal backing purchase of Custom Truck One Source

Nesco Holdings Inc. has announced a $920 million offering of eight-year senior secured second-lien bonds in connection with the planned acquisition of Custom Truck One Source (CTOS). An investor call for the BofA Securities-led deal is scheduled for March 16 at 11 a.m. ET, according to market sources.

Additional bookrunners are Deutsche Bank, Morgan Stanley, Citi, Blackstone, BMO Capital Markets, Stifel, CIBC, Fifth Third, MUFG, Oppenheimer, PNC Capital Markets, RBC Capital Markets, and Wells Fargo. Pricing for the bonds is expected on March 19. The company’s indirect wholly owned subsidiary Nesco Holdings II, Inc. is the issuing entity for the debt.

Both Nesco and CTOS are providers of specialized truck and heavy equipment solutions including rental, sales, and aftermarket parts and services.

Nesco will also fund the $1.475 billion purchase and pay down its existing debt with $742 million of new equity from Platinum Equity, $100 million of rollover equity from The Blackstone Group Inc. and CTOS, $246 million of existing NESCO equity, $140 million of additional equity, as well as a proposed $750 million asset-based lending revolving credit facility, of which $400 million will be drawn at close, according to an S&P Global Ratings report today.

Ratings assigned a B issue-level rating to the proposed debt, with a 4 recovery rating. The agency also raised the issuer credit rating to B from CCC+, given the “view of improved liquidity and leverage, along with the benefits of increased scale.”

Moody’s on Dec. 7, 2020, said Nesco’s planned billion acquisition of CTOS is a “credit positive development”, with no affect on Nesco's B3 corporate family rating.

In connection with the transaction, announced in December 2020, an affiliate of Platinum Equity committed to invest over $850 million in Nesco in exchange for newly issued common stock at a purchase price of $5 per share. In addition, existing CTOS shareholders, including certain funds managed by The Blackstone Group, in its capacity as the current major owner of CTOS, and certain members of CTOS' management team, were expected to invest about $100 million in Nesco in exchange for newly issued common stock also at the same price as Platinum. Energy Capital Partners and Capitol Investment, who together currently own about 70% of Nesco's outstanding common stock, will retain their entire ownership positions in Nesco and have entered into voting agreements in support of the transaction.

The notes will be callable at par plus 50% of the coupon after year three, with an up-to-40% equity claw at par plus the coupon for the first three years. Additionally, the issuer will be allowed to redeem up to 10% of the notes per year at 103% of par during the non-call period, sources said.