Pricing was cut one last time on the $800 million term loan "B" for Domtar before it broke for trading last Thursday, taking pricing on the covenant-lite tranche down to LIBOR plus 137.5 basis points. Some observers think this might be some of the lowest pricing seen on a covenant-lite term loan, though this could not be confirmed.
The term loan broke at par-par 1/2 and stayed in that context. "It should be interesting" to watch where it trades, said one dealer, explaining, "Some of the lower coupon stuff is not doing it for the collateralized loan obligation guys."
On Friday one dealer quoted it at par 3/8. "It's not bad, it's not great, it's where you expected it," a second trader said. "All the lower coupons, you're not going to see them go to 101." A portfolio manager agreed. "It's a fine credit, but they took advantage of us," he said about the price cuts. "People know the name, like the name," but he didn't like that pricing went so low without covenants.
JPMorgan and Morgan Stanley launched the deal Feb. 8 as an $800 million term loan and a $750 million revolver (CIN, 2/19). The deal was so oversubscribed that covenants were cut and pricing on the term loan was initially flexed down from LIBOR plus 1 3/4% to LIBOR plus 1 1/2%. Pricing was then cut further to LIBOR plus 137.5 basis points as syndication closed. Pricing and covenants on the revolver did not change. Calls and emails to bankers at Morgan Stanley and JPMorgan were not returned.
The liquidity that has flooded the market has floated many credits to the high 100-101 bid when they broke for trading. Last month, deals like Freescale Semiconductor and Education Management were repriced and then hit 101, much to the disbelief of some investors. "Everything is repricing and going to 101," said one portfolio manager. "It's just insanity."
Domtar is using the financing to combine with Weyerhaeuser Company's fine paper, paper-grade pulp and related assets to create a new company called Domtar Corp. Calls to a Domtar spokesman were not returned.