Portfolio managers got their first peek at the $9.3 billion HCA term loan last week and they are already poking the LIBOR plus 2 1/2% pricing with sharp sticks. Investors said the pricing is aggressive and they expect to prod it upwards before the deal's scheduled October launch.
While leads Bank of America, JPMorgan, Citigroup and Merrill Lynch had already gone out to senior managing agents in August, this was the first time portfolio managers got a full glimpse into how the banks plan to approach the pricing. The response was tepid. "We got our first look at it and I think it might need to go a little wider," one portfolio manager said. "I think 250 is too aggressive to put away $9 billion plus of paper. Plus, when you add in the term loan "A," that's $11.5 billion of paper. I think it's challenging to put away that much paper at 250 and it might have to come at a premium."
The deal was sliced and diced into five tranches to try and appeal to as many investors as the banks could. It is split into 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. "They've got a little ham...a little cheese," said a banker. "They've really cut it up as much as they could."
Sitting below the $16.8 billion of bank debt will be $5.7 billion in new senior secured second-lien notes. The company already has $1.36 billion of existing notes that will sit below that. Although one portfolio manager had speculated the bonds might struggle because current bondholders would not want to buy into the new deal, this portfolio manager thought the bonds would get done.
To get done, the banks will likely have to score with every possible investor base. The banks will need to not only entice institutional investors, but also appeal to hedge funds and banks, and still many market players predict the lead arrangers will be left holding a large chunk. One banker noted that a few investors that had already seen the deal had only taken a few million each, which left barely a dent in the credit. There is some question over whether hedge funds would play in a 250 priced deal and that might be one of the prime issues that moves up pricing.
Others in the market are concerned collateralized loan obligations do not have room to take on such large amounts of healthcare credit. One trader also lingered on the price issue and emphasized that to make a CLO manager want to add even more healthcare paper to his portfolio, or to sell some existing healthcare names, the HCA credit would have to be attractive. "It is a huge deal it will definitely have to go north of [LIBOR plus] 250," he said. "Nobody will blow out a lot of paper just to accommodate HCA." --Jacquie Viskovich
