Ravenous collateralized debt obligation managers and strong high-yield bond performance helped push Sunguard's mammoth $4 billion "B" tranche above 101, surprising market players in its first week of trading. Many investors said despite the addition of soft call protection and a price increase, they still expected the credit to trade under par. "The presumption was that it was going to trade below par, it was just a question of by how much," one buysider said. At press time the $4 billion "B," which has a $250 million U.K. tranche and a $250 million euro-denominated portion, was trading at 101.375-101.625.
Investors noted that there are a slew of CDOs warehousing for a post-Labor Day launch. Sunguard represents a lot of paper for those managers, and traders and investors said the credit also likely got a push from its bonds, which came to market at the end of the July. Led by Deutsche Bank, Citigroup, JPMorgan, Morgan Stanley, Goldman Sachs and Bank of America, the bonds include eight-year, $1.6 billion fixed rate bonds priced at 9 1/8%, which is tighter than the 9 1/4% it had been talked at, and eight-year, $400 million senior floating rate notes priced at LIBOR plus 4 1/2%. With high demand, the banks brought to market an additional $1 billion of 10-year senior subordinated notes priced at 10 1/4%. Last week the 9 1/8's were quoted at 103 1/2 -103 3/4; the 10 1/4s were 103-103 1/2 and the floating rate notes were 103 1/8-103 5/8. Bonds that came to market before the buyout include 3 3/4s due in 2009 quoted between 91 1/2 - 92 1/4, and 4 7/8s due in 2014 quoted at 87-87 1/2.
"The bonds were priced at a level that as soon as they came out of the chute, they traded up to a pretty high dollar price," said another investor. "So if you look at the bonds and how the high-yield market has received them and the context of some loan guys waiting for it to pop out, they are now scrambling to buy. On a relative basis [the "B"] may be attractive."
Despite the "B" trading so well, the $1 billion revolver is quoted at 96 1/2 -97 1/2, which didn't surprise another investor. "[The revolver] is unfunded, no one wants to buy it; you only buy it because you have to." JPMorgan, Citigroup and Deutsche are leading the bank deal. The "B" loan and revolver are both priced at LIBOR plus 2 1/2%. Moody's Investors Service assigned a B1 to the revolver and term loan "B." It assigned a Caa1 rating to the $1 billion subordinated notes and B3 rating to the $2 billion senior unsecured notes.
