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Investors Push Back On Repricings

20 Apr 2006

Repricings are feeling the weight of investor pushback. Last week Deutsche Bank and Credit Suisse were forced to rework Warner Chilcott after investors balked at a 50 basis points cut.

Repricings are feeling the weight of investor pushback. Last week Deutsche Bank and Credit Suisse were forced to rework Warner Chilcott after investors balked at a 50 basis points cut. "Warner Chilcott was a credit that never traded well," one market player said. "Its 275 coupon was never well liked and the fact they want to reprice to 225 is offensive."

Banks modified the cut on the $1.64 billion term loan to LIBOR plus 2 1/2% with a step down to LIBOR plus 2 1/4% if the company gets a rating of B+ and B1 or better, or obtains total leverage of 5 3/4 times or less.

"I think there is generally a fair amount of collaboration on the [buyside] to push back," one portfolio manager said. "Allied Waste, Warner Chilcott, Six Flags -- they are all in par land. These are purely price driven [transactions]. There is a message being sent back to the agents: enough is enough."

One banker shrugged it off, however. "Most people typically try to trim 25 basis points but given the raging bull market conditions, if you say, normally we'd take 25 basis points, [you say] let's try for 50," he said."

Investors also pushed back on Six Flags, which came to market April 12. Lehman Brothers asked for a price cut on its term loan, which has $640 million outstanding, from LIBOR plus 2 1/2% to LIBOR plus 2%. Investors fought back and pricing was pushed to LIBOR plus 2 1/4% with a step down to LIBOR plus 2% based on ratings.

Six Flags term loan "B" is trading at 100.875-101.719, according to Markit. One investor said that lower spread names are not trading well. "The appetite for lower spread names is not there," she said. A Lehman banker declined comment.

Investors made their first concerted pushback on Allied Waste after JPMorgan proposed a 50 basis point cut to LIBOR plus 1 1/2% on the company's $1.275 billion term loan "B" (CIN, 4/2, 4/9).

"The institutional market is sick and tired of being repriced every day," another portfolio manager said. "The market just can't tolerate the very low spread on paper."

20 Apr 2006