Robust deal flow gave way to some favorable market conditions and oversubscription, leading to a number of credits flexing down. Following weeks of speculation that deals might struggle as investors waited to see what terms the banks would offer on the upcoming mega financings, a number of credits flew through syndication. Some market players, however, were quick to say the flex down volumes are not returning to spring levels.
"[We] have seen oversubscription and flexing down [recently] -- haven't seen that in a while," said one banker. An investor agreed, but said, "Traditionally it is 10 out of 10 [deals flexing down], but now it's two out of 10." Still, the banker was concerned with the financings on the horizon. "We'll see if HCA comes to market and ruins everything," he said, anticipating that other deals may be hurt as investors funnel their money into the large credit.
Cinemark USA, Wesco Aircraft and Stolle Machinery were all oversubscribed deals that were subsequently flexed down over the last two weeks. The Lehman Brothers and Goldman Sachs-led $1.27 billion deal for Cinemark flexed down a quarter of a basis point to LIBOR plus 2% (CIN, 9/8). The Carlyle Group-owned Wesco, was so oversubscribed that Lehman Brothers dropped the second-lien to LIBOR plus 5 3/4% from 6 1/2% and the first lien a quarter of a point to LIBOR plus 2 1/4% (9/15). Canning machine company Stolle Machinery's credit, led by Goldman Sachs and Credit Suisse, found the same fate pricing on the revolver and term loan "B" were knocked down a quarter of a basis point to LIBOR plus 2 1/2% after investors ate it up (9/15).
"The market is definitely bifurcated," said an investor. "The good, solid no-brainer bank deals are getting flexed down." But other deals are struggling and needed a price bump to get done, he explained.
The JPMorgan and Credit Suisse-led $750 million second-lien term loan for EXCO Resources saw pricing increase 50-100 basis points. The deal, which launched Sept. 11, was originally priced at LIBOR plus 4 1/2%, but was bumped up to the LIBOR plus 5-5 1/2% range last week. The $1.396 billion Boart Longyear credit also got a face lift. Originally, Credit Suisse launched the deal Sept. 12 as a five-year, $125 million revolver; a one-and-a-half-year, $320 million capital markets term loan; a six-year, $650 million term loan "B" and a seven-year, $300 million second-lien term loan. Investors commented that it was a "quirky" credit, citing too much leverage and too much debt with the capital markets loan. With the new loan, the company increased its debt to $1.27 billion from $578 million June 30, which Standard & Poor's cited as "very aggressive" in a release. "If the markets go against them, they won't be able to get it done," one investor said (9/8).
Since then, the capital markets term loan has been eliminated, replaced by a one-and-a-half-year, $200 million senior unsecured term loan, with the additional $120 million added to the initial term loan "B," increasing it to $770 million. The new unsecured term loan is priced at LIBOR plus 8 1/2%. Pricing remained the same on the other tranches: LIBOR plus 3 1/4% on the revolver and term loan "B" and LIBOR plus 7% on the second lien.
"There's an expectation out there that a lot of volume will have to find its way through the pipeline during the month of October," a banker said. "Will the favorable conditions continue? We'll have to wait and see."
