Investors are starting to put some muscle into their push to resist the wave of repricings that have gripped the market. Case in point has been the struggle over JPMorgan's attempt to take pricing down to LIBOR plus 1 1/2% on a new $2.68 billion term loan for DaVita. The bank bumped up pricing to LIBOR plus 1 3/4% last week, but some in the market weren't even sure if it could go at that level. Commitments were expected to be due Friday and as of press time a final price level could not be determined.
A DaVita spokeswoman early Friday morning said the company does not "speculate or communicate in advance of what we will find out today." She said it is not "productive to talk about where [pricing] went out," and referred specific pricing questions to JPMorgan. A bank spokesman declined comment. The spokeswoman would not comment on whether the company approached the bank or vice versa or whether the company would pull the deal if pricing was pushed back to LIBOR plus 2%.
Word on the street was that some investors wanted call protection and would not commit without it, while the idea of a pricing grid was also not being well received. "They came at 225 and it had a pricing grid and already stepped down to 200; so it's not like they haven't gotten improvements already," said one investor. "Going to 150, I think, was a complete insult."
DaVita is looking to refinance debt it borrowed last year to back its $3.05 billion acquisition of Gambro Healthcare. The credit currently consists of a $279 million term loan "A" and a $2.4 billion term loan "B" that is expected to be rolled into one, $2.68 billion term loan. Pricing on the "A" is LIBOR plus 1 3/4% and pricing on the "B" is LIBOR plus 2%. The company also has a $250 million revolver priced at LIBOR plus 1 3/4% when drawn (CIN, 5/22).
Another deal that saw some investor pushback was the financing for Vanguard Car Rental USA, which consists of a six-year, $175 million revolver and a seven-year, $800 million term loan "B" (CIN, 5/15). Pricing originally came out at LIBOR plus 2 1/2% on both tranches but firmed at LIBOR plus 3%. Goldman Sachs and JPMorgan lead the deal, which refinances existing debt and pays a dividend to sponsor Cerberus Capital Management.
"Things are coming at the wide end," one portfolio manager said. Often when price talk is given, deals will settle at the higher end of the spectrum, he explained. "You are starting to see some pushback and certainly [the banks] can't flex them down because the market has kind of shaken out. Hopefully we are done with tightening."
This was Vanugard's second shot at the market, after Lehman Brothers and Goldman led an initial deal, which launched at the end of July, and consisted of a $175 million revolver and a $725 million term loan "B," with pricing expected to be in the LIBOR plus 4 1/2% area on both tranches (LMW, 8/1). It was reworked two weeks later as a $525 million first lien priced at LIBOR plus 5% and a $100 million second lien priced at LIBOR plus 7 1/2% (CIN, 8/15). It was then pulled soon after.
"It's going to be very interesting over the next few weeks," another portfolio manager said. He was specific to point out this is not DaVita specific, saying it is a great name that his firm likes holding in its portfolio. "If the backup in the secondary market, which has been significant hundreds of basis points and the inability of leads to get deals done at levels they could a month ago, if those things take hold, its going to make the market much healthier."