Market Girds For Press Of Fat Deals

At least a half dozen multi-billion dollar deals are slated to hit the market from now through January, providing a hearty test of market capacity. Collateralized loan obligation managers will be asked to take large chunks of credits, but most investors agree banks will be pressed to take more than their fair share. "Banks are probably going to eat a lot of it," said an investor. Market players noted that the loan-only credit default swap market could see a significant pick up as banks look to hedge the risk of the credits they are holding on their books.

The recently announced $8.6 billion credit backing the management-led buyout of Kinder Morgan joins deals for Aramark, Michaels and Univision on the roster of big credits coming to market soon. The biggest deal, and maybe the best test of the market, is HCA's expected $16 billion credit, which is more than double everything else coming. "The bellwether deal is going to be HCA," said one investor. "A lot of CLOs are [filled up] on their healthcare buckets ­ why should I sell something at LIBOR plus 2 1/4% to buy something seven times leveraged at a higher price?" HCA'S $16.8 billion credit facility is led by Bank of America, JPMorgan, Citigroup and Merrill Lynch. The deal consists of a six-year, $2 billion revolver; a six-year, $2 billion asset-based revolver; a six-year, $2.25 billion "A" term loan; a seven-year, $9.3 billion term loan "B" and a seven-year, $1.25 billion term loan denominated in dollars, euros and other currencies to be mutually agreed upon, according to a filing with the Securities and Exchange Commission (CIN, 8/11). The lead banks started shopping the deal to senior managing agents two weeks ago and broader syndication is expected to kickoff this week.

Last week's entry, Kinder Morgan, has tapped Goldman Sachs, Citigroup, Deutsche Bank, Wachovia Securities and Merrill Lynch for a credit facility that should be around $8.6 billion and is expected to close late in the fourth quarter, according to a banker and an analyst. Richard Kinder, ceo, and Bill Morgan, co-founder, as well as Goldman Sachs Capital Partners, American International Group, The Carlyle Group and Riverstone Holdings will pay $22 billion to take the company private, including the assumption of about $7 billion of debt. The management-led buyout will be financed with a combination of equity from the investor group, as well as the debt financing. A Kinder Morgan spokesman declined comment. A spokesman for the Carlyle Group could not be reached. Calls to a GS Capital Partners spokeswoman and a representative from Riverstone were not returned.

Standard & Poor's affirmed Kinder Morgan's BBB corporate rating and announced the company will remain on CreditWatch with negative implications due to the increase in financial leverage the merger will bring. The ratings agency said the increased assumption of debt will probably cause the company's rating to drop to BB. One analyst said it was too early to determine what debt leverage will be, especially since it is spinning off its natural gas retail distribution operations to GE Energy Financial Services for about $710 million. An analyst from S&P did not return calls.