Bear Stearns' deal for Appleton Papers is being met with a rugged response from both the buyside and bankers uncomfortable with the structure of the deal and concerned about the company's main business line. Last week pricing on the $250 million "B" tranche flexed 1/2% to LIBOR plus 4%, but even at that level investors said they are not eager to commit. The credit backs the $810 million management-led buyout of the company from Arjo Wiggins Appleton.
The loan is fully underwritten by Bear Stearns, though Firstar, LaSalle Bank, M&I Bank and Toronto Dominion have signed on at the agent level. In addition to a $250 million "B" tranche, it includes a $75 million revolver and a $110 million term loan "A." Pricing on the four-year pro rata is LIBOR plus 3%. The financing package included $175 million of bonds, but a brutal high-yield bond market quashed that move and a bridge loan is being considered in its place, according to a buysider.
The bridge presents a problem for investors, one buysider said, because from a relative value point of view investors like to see a comparable yield between the bonds and bank debt. There is too much uncertainty over what the yield could be on a future Appleton bond issue, she said, so investors are not keen to sign on to a bank loan now.
Calls to Doug Buth, ceo, were referred to Bill Van Den Brandt, manager of corporate communications for Appleton, who said that in light of the tragedy of Sept. 11 and the effects on the financial markets, Appleton is waiting for better market conditions. If the bond financing is impossible, then Appleton will explore alternate financing arrangements, said Van Den Brandt, though he declined to comment on what they may be. One banker familiar with the proposed credit, said, "AWA has indicated a willingness to provide the financing in place of the high-yield." The financing package also includes cash, about $105 million of equity and a $140 million payment in-kind seller notes.
Investors expressed concern over the fact that Appleton's main business is carbonless paper, a product in decline. But a Bear Stearns official noted that Appleton has strong cash flow and asset coverage, and is expected to pay off the loan in three years. In a downside scenario the loan would be paid off in five years, he added. Investors are being asked to respond by Oct. 16. He declined to comment on commitments garnered to date.