Investors are griping over repricings for the Dex Media East and West "B" loans that will cut spreads to LIBOR plus 1 3/4% but leave the pro rata spread untouched. J.P. Morgan and Bank of America are leading the reprice. An investor said the agent banks gave a slim rationale as to why it is being done this way on the conference call held last Tuesday. "One question that comes up is how much do the agent banks own on the pro rata," one loan investor commented. The "A" loan has a pricing grid that steps down to 150 as the company delevers, a source at J.P. Morgan said. A B of A spokeswoman declined comment. A Dex spokeswoman did not return calls.
Both Dex Media East's $543 million "B" loan and Dex Media West's $1.1 billion "B" loan will be repriced down to LIBOR plus 1 3/4%. Currently the East loan is priced at LIBOR plus 2% and the West is at LIBOR plus 2 1/4%. Both the East and West pro rata tranches are priced at LIBOR plus 2%. The East comprises a $100 million revolver and $547 million "A" loan, while the West comprises a $100 million revolver and $881 million "A" loan.
One buyside trader said the repricing isn't at all surprising given where the loan was trading. While Dex Media West's spread was at LIBOR plus 2 1/4%, the three-year adjusted spread was trading at an equivalent of 150 or 175. "In this market when they're trading well above 101 with no call they're going to come back around and cut the spread," the trader said. But the trader also expressed confusion over why just the "B" tranches are being refinanced when the "A" is still trading a bit above 101. "Theoretically the market could have been telling you to reprice that as well," the trader noted.
The whole situation is a kick in the teeth to investors who have put up with a year of spread compression. The two directory business loans are also among the most widely held names in the market. "Things have gotten just ridiculous," one portfolio manager noted. Another portfolio manager said many CLOs are unable to buy a credit priced at LIBOR plus 1 3/4%. He believes the dealers have been taking advantage of the buyside by frequently repricing credits. "Unfortunately they're going to kill the goose that laid the golden egg for them," he said. "The bulk of the institutional market are CLO buyers who have a problem if you bring a deal back to the market every 30, 60, 90 days. It's really cynical for dealers to sell deals without call protection." But these repricings can't go on forever. "People have taken an awful lot of pain over the past 18 months," he said.
Despite the concerns over the slimmed down spread one investor did comment that Dex is a good credit. "It's a great credit; they've paid down a lot of debt out of free cash flow," he noted. The refinancing is being done concurrent with Dex Media West's bond offer which was increased from $200 million to $300 million. The bonds priced at 5 7/8%. Proceeds from the bond offering will be used to repay around $200 million of Dex Media West's "B" loan. The credit was put into place last year as a part of the acquisition of the directories business by an investment group led by The Carlyle Group and Welsh Carson Anderson & Stowe (LMW, 8/18/03). The $2.75 billion Dex Media East sale was completed before the $4.3 billion Dex Media West purchase.
Lenders to Dex Media West at the time of the first amendment to the credit include Bear Stearns, Goldman Sachs Capital Partners, BlackRock, Nomura Asset Management, David L. Babson & Co., NatexisBanques Populaires, ING Capital Advisors, BMO Nesbitt Burns, HarchCapital Management, Katonah Capital, PB Capital Corp., Oak Hill Advisors, SankatyInvestors, Credit Lyonnais, Scotia Capital, Angelo, Gordon & Co., GE Capital, Gulf Steam Asset Management, Flagship Capital Management, Four Corners Capital Management, Commerzbank, Columbia Management Advisors, TCW, CypressTree, Rabobank, Eaton Vance Management, Deutsche Bank, Fidelity Management, Symphony Asset Management, Toronto Dominion, Union Bank of California, InvescoSenior Secured Management, Allied Irish Bank, American Money Management Corp., CIBC World Markets, Bank of America, Bank One, Guggenheim Investment Management, Bear Stearns Asset Management, Travelers Asset Management, Continental Casualty Co., Highland Capital Management, ErsteBank, Royal Bank of Canada, Franklin Advisers, GoldentreeAsset Management, Indosuez Capital, Lyon Capital Management, Merrill Lynch, Metropolitan Life Insurance Co., National Australian Bank, National City Bank, Octagon Credit Investors, OrixFinance Corp., Centre Pacific, SunAmericaLife Insurance Co., Bank of Ireland, The Royal Bank of Scotland, TransAmericaLife Insurance & Annuity Co. and Barclays Bank.
