Wachovia Securities may have been left in the unenviable position last week of holding a fully bought $1 billion high-yield bond issue that satellite programming company EchoStar Communications pulled at the last minute after its CFO unexpectedly resigned, according to BW sister publication Corporate Financing Week.
Calls to Ben Williams, global head of debt capital markets at Wachovia, were referred to Amy Jones, spokeswoman. She declined comment. Steve Caulk, EchoStar's spokesman, also declined comment.
What is unclear is whether Wachovia had already bought the bonds or whether it is just still committed to bringing the issue as a bought deal. If the former, it will have to either attempt to unload the issue at presumably fire sale prices or absorb the hefty cost-of-carry while waiting for the market for the bonds to settle. If it is the latter, unless it had an agreed-upon cost to the issuer that can't be renegotiated in the wake of McDonnell's departure, then presumably the offering will get done when the situation is more favorable, and Wachovia isn't facing potential sizeable losses.
The 10-year senior bullet notes were expected to be priced on Wednesday but just before the deal could take off Michael McDonnell, EchoStar's cfo, resigned, citing personal reasons.
"Wachovia told us it's a bought deal," said an analyst at a high-yield fund who covers EchoStar. "That means that they're on the hook for the $1 billion, whether or not they can eventually sell the bonds."
However, Nate Kehm, a portfolio manager at Federated Investors, said firms often safeguard against "adverse material changes" in bought deals, which can free them from bearing the full responsibility of the sale in the event of a major mishap.
Money managers said prior to McDonnell's resignation the deal was being shopped around at less-than-favorable spreads. Investors say that Wachovia wanted to sell the bonds at a 6.5% coupon.
