An all out battle was waged last week as investors attempted to block the refinancing of Emdeon Business Services' $805 million credit. After a series of back-and-forths, Citigroup rounded up more than enough signatures to close a deal that cut pricing 25 basis points. But the deal underscores the growing discomfort investors are feeling with swift repricings. Citi bankers declined to comment. A spokeswoman for the bank said the bank was pleased to have reached 99% of lender consent for the proposed amendment.
Emdeon on Feb. 22 asked Citi to approach lenders for a repricing on the credit facility that came to market in November. The bank proposed a price cut from LIBOR plus 2 1/2% to LIBOR plus 2% with 101 soft call protection for one year.
Despite a yank-a-bank threat from Citi to take out all non-consenting lenders at par, lenders turned down the pitch based on concerns that the deal had closed just about three months earlier, there had been no new financial reports generated and no permanent ceo had been put in place. Estimates from the lender group showed at least 66% disapproval amongst the group, which in their minds warranted revisions. Citigroup stayed mum through the March 2 commitment deadline and then came out with a revised offer last Monday.
The new terms proposed cutting the price to LIBOR plus 2 1/4% with a step down to LIBOR plus 2% when leverage falls below 4.85 times or Moody's Investors Service or Standard & Poor's upgrades the corporate credit rating above the current B+/B2 rating. But buysiders objected, claiming that since pricing would remain at LIBOR plus 2% if leverage rose back above 4.85 times, it was not a true pricing grid. Total leverage is currently 5.5 times. Calls to Emdeon were referred to a spokeswoman at sponsor General Atlantic, who did not respond by press time.
Investors came back with a counter offer. They proposed keeping the price at LIBOR plus 2 1/2% with a step down to LIBOR plus 2 1/4% when leverage falls below 4.85 times on a grid and 101 soft call protection. According to some buysiders, investors felt the only reason to agree to the repricings was to get the soft call protection in light of current market conditions.
On Tuesday, Citi told investors it had 50.1% of the vote -- enough to complete the deal -- and would invoke yank-a-bank for non-consenting lenders. Investors were dubious. Ultimately, Citi told investors General Atlantic had negotiated a new proposal with the "larger holders," and that there was a new proposal. This third offer was nearly identical to the second. It proposed cutting price to LIBOR plus 2 1/4% with a true pricing grid to LIBOR plus 2% if leverage falls below 4.85 times or S&P or Moody's upgrades it, as well as 101 soft call protection. Signatures were due by noon on Wednesday. "We got it done," a banker said. "There was some back and forth, but we got the amendment passed. We got the votes we needed."
There's pressure in the market to stem the tide of rapid repricings, another portfolio manager said. "We're setting precedents for what pricing levels should be for short deals," he explained. The market has seen push back on deals like the Lehman Brothers'-led West Corp. financing from two weeks ago. "People have finally just had enough," another portfolio manager said. There is some momentum to block changes to Cinemark although it's still early in the process and there will probably be some resistance to the JPMorgan-led MGM deal, which is attempting to cut covenants, the portfolio manager explained.
