The money spigot is still wide open and borrowers are splashing around with covenant lite deals. Banks across the board are launching deals with the "lite" structure, including the first mega-deal of the year, Aramark, and the coming deals for The Bridal Group, Brickman and Navistar.
"It's just stupid out there," one portfolio manager said of the structures coming to market. Goldman Sachs and JPMorgan are set to hit the market today with $4.45 billion for Aramark's buyout by an investor group. The deal is set to consist of a six-year, $600 million revolver; a seven-year, $250 million synthetic letter of credit and a seven-year, $3.6 billion "B" term loan. The revolver has a maintenance covenant, but the term loan is covenant lite, according to a buysider. Price talk is LIBOR plus 2 1/4% on the revolver and LIBOR plus 2 1/2% on the term loan and LC, according to market sources.
The company is also seeking $2.27 billion in eight-year fixed- and floating-rate notes and 10-year subordinated notes. Calls to a Goldman Sachs banker were not returned and a JPMorgan spokeswoman and spokesmen for the investor group declined comment. Calls to L. Frederick Sutherland, Aramark cfo, were referred to a spokeswoman who did not return a call.
The deal was being pre-marketed to the buyside -- the bank book was posted last Wednesday and a conference call was held last Thursday afternoon. After the acquisition, the company will have a debt leverage ratio of 8.9 times.
Standard & Poor's dropped the company's corporate credit rating to below investment grade last May when it received the "going private" proposal.
Last week's Credit Suisse-led Tube City deal was the first to start out the slew of covenant-lite deals (see story, page 2) and the parade is expected to keep rolling. JPMorgan, Credit Suisse, Banc of America Securities and Citigroup are leading $1.3 billion credit for Navistar that is not only covenant lite, but also unsecured. Lehman Brothers is leading a $400 million covenant-lite deal for Brickman. "[Brickman] continues the theme of 'good company, good management,' but way too much leverage," said the portfolio manager. The Brickman deal consists of a $50 million revolver and a $350 million term loan, according to a filing with the Securities and Exchange Commission. The company will be 6.5 times leveraged after the new debt. "The heavy liquidity is allowing people to do these deals" with these structures and leverages, he said.
Credit Suisse, Bank of America and JPMorgan will launch syndication of a $425 million deal tomorrow for Leonard Green & Partners's buyout of The Bridal Group from Federated Department Stores. The deal is set to consist of a six-year, $110 million asset-based revolver and a seven-year, $315 million term loan "B" that is also expected to be covenant lite, according to a buysider. A CS Banker declined comment. Pricing could not be determined by press time. One investor said the deal was "silly" because it's has a covenant-lite term loan behind an ABL revolver. Another investor echoed the sentiment, noting that investing under an ABL is always risky.
