Kerzner International's $250 million term loan "B," launched Aug. 4, is being offered with an original issue discount of 99.5 and LIBOR plus 3% pricing, according to a banker. An investor speculated lead banks Credit Suisse and Deutsche Bank did some pre-marketing and determined it would need the OID in order to clear the market. "They needed at least that," said an investor about the OID. "There's no collateral - we're not going to do it unless it gets really juicy."
Investors aren't too keen on the deal's pricing or the fact the loan falls behind $2.8 billion in commercial mortgage-backed securities, also led by CS and Deutsche Bank. "It looks like it's priced a little thin" for its credit rating, said another investor. Standard & Poor's kept the company on CreditWatch with negative implications where it has been since March 20 and maintained its corporate credit rating of BB-. One investor said the credit had a private rating, but was anticipating a low single B. Leverage was also a factor. "Leverage is definitely up there between 10 times and 14 times. I don't know why they aren't putting the loan on top of the CMBS," the investor said.
Kerzner's financing also consists of a six-year, $175 million revolver and a seven-year, $150 million delay-draw term loan. Colony Capital, Istithmar PJSC, Whitehall Street Real Estate Funds, The Related Companies and Providence Equity Partners will use the financing to take the company private (CIN, 8/7). The deal is estimated to cost $3.8 billion, including the assumption of $599 million in debt.
Bahamas-based Kerzner is an international developer and operator of destination resorts, casinos and luxury hotels, including its flagship brand Atlantis. Calls to Omar Palacios, v.p. of investor relations, were not returned. Credit Suisse and Deutsche Bank bankers declined comment.
A number of banks have had to add an OID to their credits in order to get them to clear the market. Deutsche Bank added a 99 1/2 OID to Toys "R" Us' $800 million term loan in July and added one onto the Stratus Technologies deal in March. Goldman Sachs and Credit Suisse added a 99.5 OID to American National Power's first lien and 97.5 on the second. And most recently, Citigroup added an OID to the U.S. tranche of VNU's term loan (see related story, page 1).