Pricing was hiked and a covenant was added last week to the $880 million credit backing the buyout of NES Rentals by private equity shop Diamond Castle. Deutsche Bank, Bear Stearns and Bank of America increased pricing by 50 basis points to LIBOR plus 6% on the seven-year, $430 million second lien. The banks also added a maintenance covenant to the second lien, stripping the deal of its covenant-lite status.
A lot of people passed on the deal, one investor said. He explained that he is steering clear of NES even with its "more appropriate" pricing and "nice" new covenant.
The banks launched the deal three weeks ago as a $450 million revolver, priced at LIBOR plus 1 3/4%, and a $430 million second lien priced at 5 1/2%. The deal did not have any covenants. Standard & Poor's assigned the second lien a B- rating with a 4 recovery rating, indicating marginal prospects for recovery following repayment of the first lien. Moody's Investors Service assigned a Caa1 rating to the second lien. The deal is expected to close sometime this month.
NES Rentals' board of directors retained Bear Stearns in December 2005 as the exclusive financial advisor to assist in reviewing strategic alternatives. Bank of America is also familiar to the company, leading a $275 million second-lien term loan priced at LIBOR plus 5% in 2004 (LMW, 7/26/2004). A Deutsche Bank banker declined to comment. A Bear Stearns banker did not return calls. A BofA spokeswoman declined comment.