General Growth Properties, in a move bankers are describing as ridiculous, is skipping the middleman and trying to reprice $2 billion of bank debt directly with investors. The Chicago-based Real Estate Investment Trust has proposed a 50 basis points price cut on its term loan "B" from LIBOR plus 2 1/4%, offering 10 basis points to investors. The company is bypassing lead banks Bank of America, Lehman Brothers, Credit Suisse First Boston and Wachovia Securities. In a letter sent to investors on Thursday, the company said it believed a rate reduction of 50 basis points was appropriate based on market conditions and informal bids it had received. Investors have until May 12 to agree to the price cut. In the past three months, the company and its banks have had numerous discussions about where the loan is trading and about the possibility of repricing, one banker said. But the company never approached the banks and said it wanted to reprice or else "we are going to investors," the banker said. He first heard about the letter was from an investor.
The company has said that if the existing holders of the name do not agree to the reduction, the company will consider its financing alternatives and may replace the four-year loan. Calls to Bernard Freibaum, GGP executive v.p. and cfo, were not returned.
The $5.65 billion facility was put in place late last year and consists of a $3.65 billion term loan "A" and the four-year $2 billion "B" loan. The "B" has traded as high as 101 1/2 implying that a reduction could be appropriate. But late last week the institutional debt was trading around 100 3/4 -101 1/4 as lower-coupon names took a hit in weakened market.
Loan participants are ridiculing the attempt. "It's 100% issue, there is no chance people will do it, there is no reason to do it," said one investor. He continued that without the relationships with the banks involved, investors will feel no obligation to take the cut. Another investor whose firm does have a piece of the loan, said, "I think people will walk rather than do it." The banker said he cannot remember a time in the leveraged loan market where a company the size of GGP has done this. The first investor said that larger, investment grade companies, such as General Electric Co., can go straight to investors. But he noted that even the U.S. government goes to the banks in order to issue treasuries. "The company trying to reprice on their own is ridiculous," he said. "This violates the cardinal rule as investors don't want them to go directly, there are relationships." Lehman Brothers bankers declined comment. Calls to bankers at B of A, CSFB and Wachovia were not returned.
