JPMorgan pulled its deal forDaVita last Thursday after investor resistance caused the bank to rework terms at least twice. As first reported on CIN's Web site, investors have been fighting the 50 basis point cut the bank asked for on a new $2.68 billion term loan since it was first pitched to the market in mid May. Besieged by repricings over the past few months, investors have started fighting back and in some cases called around to rally support to block price cuts. With credits now trading at or just below par, as opposed to par plus a few months ago, things are slowly starting to balance out, investors said.
"Score one for the good guys," one portfolio manager said about the deal being pulled. "We're happy about it, it's a good outcome. It definitely signals a change. Obviously, the fact that it is a big issuer and the fact that it's JPMorgan. Not to pick on JPM, but it's not like a little deal they tried to reprice and didn't. It's mainstream and the institutional market is saying 'enough is enough' and hopefully we don't need to deal with this anymore." A JPMorgan spokeswoman declined comment.
The banks came out in the middle of May asking for pricing of LIBOR plus 1 1/2% on a new $2.68 billion term loan, that rolled a $279 million term loan "A" priced at LIBOR plus 1 3/4% and a $2.4 billion term loan "B" priced at LIBOR plus 2% into the one tranche. DaVita was looking to refinance debt it borrowed a year ago to back its $3.05 billion acquisition of Gambro Healthcare. There was also a $250 million revolver priced at LIBOR plus 1 3/4% drawn, which a DaVita spokeswoman said it would likely look to reduce pricing on as well (CIN, 5/22). A price cut on the revolver was never pitched to investors.
After a tumultuous conference call with investors voicing their displeasure with the price cut and overall displeasure in the market, JPMorgan pushed pricing back up to LIBOR plus 1 3/4% on the term loan, but even then investors didn't think it could get done without call protection (6/5). Early last week the bank was talking about keeping the two tranche structure, taking pricing on the term loan "A" to LIBOR plus 1 1/2% and the term loan "B" to LIBOR plus 1 3/4%. But at least one large account said that deal was not pitched to them.
"We felt right now was not the right time to get the pricing and terms we wanted," a DaVita spokeswoman said. She said the company would consider coming back to the market, but would not discuss a time frame. The "A" loan matures in 2011 and the "B" loan is due in 2012, so the company has time to consider its options, although one market source said it could be back by the end of the year.
"This sends the signal, single B [credits] should not be less than 200," the portfolio manager said. "It will trade at par and if [the banks] try to reprice single B [credits], you are going to get push back from the market." Another portfolio manager said collateralized loan obligations just can't handle the lower spreads. "Things were getting done at extraordinary levels; just don't think we are there now. The whole psychology is changing; [investors] are much less willing to make all these purchases."
One banker admitted that pricing couldn't get much lower. "There was only one place to go from where it was," he said. He estimated that spreads are about 25 basis points higher, on average, for single B credits and about 15 basis points higher for BB credits as compared with three weeks ago. Another banker applauded the pushback. "The market needs a little discipline," he said. "I'm glad to see it."
