Investors are pushing back against General Growth Properties' attempt to reprice its $2 billion "B" loan. After a conference call last Tuesday, investors were split into those that would accept a 25 basis points reduction from LIBOR plus 2 1/4% in exchange for 12-month call protection and those that object to the reprice altogether.
One investor said he thinks the 25 basis point cut with call protection will get done. "At 200, that is not egregious," he said of the pricing. "From a performance standpoint, they haven't been bad. The problem is it's a REIT and people are uncomfortable with those, which reduces natural buyers. I would love to hear the argument of why LIBOR plus [2%] does not work."
One argument is performance. "There is a fair amount of investor push back," an investor noted. "They have not been put on watch for upgrade, they haven't delivered. Some people are questioning why it is appropriate to reprice." Additionally, some buysiders are troubled by discussion on the call that the documentation does not allow the "B" loan to be paid off and replaced by a "C" loan without the "A" being paid off first.
The company first tried a cut by skipping lead banks -- Bank of America, Lehman Brothers, Credit Suisse First Boston and Wachovia Securities -- and bringing a 50 basis points price cut on the loan in exchange for a fee of 10 basis points straight to investors in April. The play, which was called ridiculous by some buysiders, never got done, but the move is in the back of the mind of some of those investors. "If this did get done at LIBOR 2%," said the second investor, "wouldn't the company come in and try and do it again."
The facility includes a $2 billion "B" loan priced at LIBOR plus 2 1/4%. It also consists of a $500 million revolver and a three-year, $3.65 billion "A" term. Pricing on the revolver and term loan "A" are set on a pricing grid tied to a debt to capital ratio with the spread between LIBOR plus 1 1/4% and LIBOR plus 2 1/4%. A B of A spokeswoman had no comment and calls to bankers at the three other institutions were not returned. Bernard Freibaum, GGP executive v.p. and cfo, did not return calls.
