Counteroffer Drives Up Finova Group Debt

  • 06 May 2001
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News of a bidding war for control of Finova Group sparked a flurry of small trades totaling $25 million in the ballpark of 83 1/2 early Thursday. The bid-offer spread was quoted at 83-84 1/2, up from 81. Meanwhile, dealers cautioned the counter offer by GE Capital was just that, an offer, and still too preliminary to impact levels. "It will still be sloppy," said a dealer. "There's just too many questions. A bid is only a bid; it's not firm." A spokesman at Finova did not return calls.

As of last Thursday, Finova Group's creditors and GE Capital were trying to finalize an agreement on a counter offer to the $6 billion bailout proposal by Berkadia, a joint venture of Leucadia National Corp. and Warren Buffett's Berkshire Hathaway.

One market watcher, who said months ago "don't count out GE" after Berkadia stepped in, said the latest announcement came as no surprise. "This has been brewing for a while. The feedback I got was the bank group was really unhappy with the treatment and terms of the [Berkadia] offer, particularly the interest rate. Creditors were being asked to take a junior position behind Leucadia's secured notes, yet Leucadia was going to get a higher rate." Unlike other dealers who minimized the counter offer, this player believes it could materialize. "The alternative bid may be live. Where there's smoke, there's fire," he said. An official close to the deal confirmed that GE Capital and Finova are in talks, adding that "we are guardedly optimistic." Calls to Berkshire Hathaway were not returned. A Leucadia spokeswoman and a GE spokesman declined to comment.

Bids for Finova's paper bottomed out at 65 last December due to concerns over losses in the company's portfolio. Levels rebounded earlier this year to the mid-80s when Berkadia stepped in with its counteroffer. A dealer said the latest levels aren't necessarily a reflection on the company's standing. "Just look at their business; they do lower-rated lending. They got into trouble because they were too aggressive," he said. Finova has $4.6 billion in credit facilities with $1.6 billion expiring this month. Citibank leads the deal on the $1.6 billion facility. A spokesman did not return calls.

  • 06 May 2001

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2 Bank of America Merrill Lynch (BAML) 8,264 27 10.34
3 Lloyds Bank 7,329 24 9.17
4 Citi 6,748 19 8.44
5 JP Morgan 5,220 8 6.53

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5 Credit Suisse 69,442.99 183 6.53%