The bank debt financing for Thomas H. Lee Partners' leveraged buyout of Refco Group was close to being filled last week despite a mixed response from loan investors. Bank of America, Credit Suisse First Boston and Deutsche Bank are leading the $875 million credit, which comprises a six-year, $75 million revolver and seven-year, $800 million "B" loan. More than 40 accounts are in the book, which was set to close last Friday, a banker said. Still, several major buyside firms took a pass on the unusual financing.
Refco is a derivatives clearing and brokerage firm and is not a typical LBO company. The nature of the business is different and there are limited comparable companies for financial services firms in the loan market, the banker said. Peter Nerby, senior v.p. with Moody's Investors Service, said a leveraged buyout of a finance company is unusual but noted, "It has the characteristics of many LBOs--the company does generate some reasonably predictable free cash flow as a result of its position as an intermediary in the derivatives world and its operation in the exchange traded derivatives world and operation as a broker dealer."
Nerby said the Refco credit is more of a cash flow transaction than a collateral transaction. "There is not really a lot of hard collateral there--there is security in the shares of the companies, but really what you are relying on is the franchise that Refco has as an intermediary and cash generated from that," he explained.
Robert Trosten, Refco's cfo, referred calls to Joe Molluso, a CSFB banker, who declined comment. A B of A spokeswoman declined comment. Deutsche Bank officials and a T.H. Lee spokesman did not return calls. Price talk on the credit is LIBOR plus 2 3/4% across both tranches. The $600 million of bonds priced at 9%.