The large size of Georgia Pacific's $11 billion credit facility caused a lot of pricing volatility after all tranches broke above par in the secondary market last week. After the initial break, all tranches fell a quarter of a point, said a trader. A lot of investors shifted investments from one tranche to another, causing volatility on the credit, explained the trader. "People were trying to find out where they should play," he said. Another dealer said there was a lot of selling on the term loan "A" as banks sought to sell down their loan exposure.
Georgia's $5 billion term loan "B" and its $2 billion term loan "A" broke at 100 3/4, while the $2.5 billion second lien broke at 102. Trading volume was also heavy. Traders estimated between $500 million and $800 million of paper exchanged hands over two days following the break. A dealer said the term loan "B" traded the most actively and traded as high as 101 1/2. The deal attracted a wide range of investors, he said.
The massive credit facility backs Koch Industries' $21 billion acquisition of Georgia Pacific, a forest products producer. Georgia Pacific's large debt burden from the acquisition caused ratings agencies Standard & Poor's and Moody's Investors Service to downgrade the company's corporate credit ratings. Moody's estimates Georgia's book debt will nearly double to an estimated $15.4 billion from $7.7 billion as a result of the acquisition. In January, S&P downgraded the company's long-term credit rating to BB- from BB+. Moody's downgraded it two notches to Ba3. The cyclicality of the forest products industry, which is in a downturn, is also a credit concern. Despite this, one investor said the deal is a good play. "It is large and liquid. People like these types of deals," he said.
S&P assigned a BB- rating to the senior secured bank loan and a 2 recovery rating to the $8.5 billion senior secured first-lien credit facilities. It assigned a B+ senior secured bank loan rating to the second-lien credit facility and a 3 recovery rating, indicating a 50%-80% recovery of principal if it defaults. Moody's assigned a Ba2 rating to the secured bank facilities and a Ba3 rating to the second-lien loan. A Georgia Pacific spokeswoman declined comment.