Investors are pulling together to push back aggressive repricings or are trying to find a middle ground with issuers who have been the beneficiaries of a super-hot market.
Last week market players expected some push and pull on Environmental Systems Products, CinRam International and Tempur-Pedic, as banks go through the tricky balancing act of doing the best for their corporate and buyside clients.
St. Marys Cement just finished a repricing where two-year call protection was put in at the request of lenders. Citibank led the deal that cut the spread by 50 basis points on its $225 million "B" loan to LIBOR plus 2%. "[Citi] felt it was totally sellable and it seemed to be that way," noted Mike Pengelly, the company's cfo. He said the call protection might have been in response to some lenders, but the reprice did get 100% consent.
UGS Corp., Dr. Pepper/Seven Up, Community Health, Concentra and CSK Auto also had call protection put into their latest agreements after cutting the interest rates on their debt.
"Anytime you can make your debt cheaper you're going to go for it," said Pete Groth, v.p. and corporate treasurer of Fairchild Semiconductor International. The company recently cut the spread on its $298 million "B" loan by 25 bps to LIBOR plus 2 1/4% after being approached by its lead banks Deutsche Bank and Fleet Bank, now Bank of America. But he also realized that it was not in anybody's interest to push things. Groth said the company talked with the lead banks over the potential investor response to the reprice. "If something is there for us to get, we'll take it," he said. "We're not interested in pushing [so] hard that we upset the lenders. This is a market we are going to be in for a while and probably want to tap again in the future."
No call protection was put in on the Fairchild credit. Groth said his company kept the reprice on the conservative side while some other borrowers were pushing for 50 bps cuts. Fairchild's "B" debt had been trading above par in the market. "Ever since we did the original deal back in June '03 we've steadily improved our financial performance," Groth said. "Our numbers have gotten better and the bank loan has stayed strong. Lenders, in general, feel fairly comfortable about the liquidity of the company and how things are going right now."
Meanwhile, St. Marys' facility was originally put in place to finance the acquisition of the company by Brazilian parent Votorantim in 2001. At that time, the credit was priced at LIBOR plus 3% and was cut down to LIBOR plus 2 1/2% in December 2003. Marcelo Martins, a former Citi banker who did the original financing, is now the cfo of Votorantim's cement group in Brazil. Pengelly said this gives the company "almost an inside track" since the people at Citi working on the credit used to work with Martins.