Borrowers have been slashing hundreds of millions of dollars in interest costs as banks aggressively pursue their own clients and each other's. Just last week Rite-Aid Corp. announced it is cutting $27 million in annual interest expense after Citigroup and J.P. Morgan amended the spread on its $1.75 billion credit. Washington Group International announced expected interest savings of between $9-10 million for 2004 after Credit Suisse First Boston improved the terms on its $350 million bank debt.
According to investors, the banks have to offer aggressive repricing to clients to beat the offers of other banks trying to jump in. "I've never seen it so competitive from that standpoint," a buysider said. J.P. Morgan has been the most active, said several investors with one calling the bank "a serial repricer." But issuers don't seem to mind. "[The] supply/demand for term debt was strong and J.P. Morgan thought we could shave the 25 basis points off with a couple of weeks worth of work," said Alan Seimek, Nebraska Book Co.'s cfo, referring to his company's reprice (LMW, 8/9).
There are grumblings from buysiders that J.P. Morgan may be repricing aggressively to pump up volume in the league tables. Last quarter Bank of America took first place spot on the leveraged-loan league table replacing usually dominant J.P. Morgan. "B of A beat them first quarter and all of the sudden J.P. Morgan goes in and reprices every loan in their book," the investor noted. A J.P. Morgan spokesman dismissed such talk as nonsense. "Because we're on so many deals to begin with, we're going to be predominant in terms of repricings as well," he said. "We don't manage our business for league tables. What is being experienced now is strictly the fact that the loan market is very hot right now, clients understand that and are wanting to take advantage of the market's accommodative sentiment."
To be sure, J.P. Morgan is by no means alone in the repricing arena. CSFB, Citi and Wachovia Securities have done several repricing deals as well. Regardless of whether this is "league table jockeying" or not, it is seriously frustrating investors, who don't see improved credit quality to go along with the better pricing. They are now beginning to gain some headway in their opposition. "It seems like people are pushing back a little bit on some of the repricings," an investor said, pointing repricings for UGS Corp. and Dr. Pepper/Seven Up. Call protection was installed on both to help ease investors concerns over another reprice in the immediate future.