The $410 million in syndicated loans for Saguaro Utility Group's buyout ofUniSource Energy has hit a hurdle: not enough lenders want to commit to the deal even after pricing was jacked up, according to Power, Finance & Risk, an LMW sister publication. The problem, according to financiers, is the drawdown of the deal is dependent on regulatory approval of the $3 billion buyout. That could mean banks make a commitment that is not drawn for as long as a year, said one financier, and that is proving a tough sell to credit committees. "Credit guys tend to look at the dark side," he added.
The fully underwritten loans back the Saguaro bid, comprising Kohlberg Kravis Roberts, J.P. Morgan Partners and Wachovia Capital Partners (LMW, 12/2). Saguaro is looking for a $360 million, seven-year term loan and a $50 million, five-year revolver. The leads are J.P. Morgan, Credit Suisse First Boston and Lehman Brothers. The loans were originally pitched at LIBOR plus 31/2% with a 50 basis point "ticking fee" paid to lenders while the facility remains undrawn. Base pricing has now jumped to LIBOR plus 41/2%, but the deal is still struggling, said one banker. Another industry official says commitments are in the sub-$200 million region. "It's a failure," said one banker, referring to the strategy of trying to tap the market so far ahead of the consummation of the acquisition.
The leads are still pushing the paper after extending the syndication deadline. A spokesman at J.P. Morgan said the pricing hike is in response to investor concerns about the delayed draw. He declined comment on current commitment levels but said the deal is still being pitched. A spokesman at CSFB did not return calls.
While the leads appear to have misread the market, market players said they were following a well-tested strategy. "You issue in the market when you think you can," one noted. Launching of the deal so far ahead of the acquisition approval was aimed at tapping in to the current hot term-loan market. As part of the Saguaro launch, the banks also pitched a separate $400 million refinancing for UniSource subsidiary Tucson Electric Power Co. Lenders said the deal is heavily oversubscribed. The J.P. Morgan spokesman stated that refinancing is near to closing.