Deutsche Bank and Citibank are in the market with a repricing for Greif that has drawn some fire from investors but is expected to cruise to the finish line. Some investors in the deal consider the price cut unwarranted, but with banks eager to step up, they say they are out of options. The financing will essentially convert Greif's $300 million "C" loan to an "A" loan and bring the spread down from LIBOR plus 21/4% to LIBOR plus 13/4% with a step down to LIBOR plus 11/2% if certain leverage targets are met.
Despite the "A"-shaped loan, which is typically an investment for banks, a lot of the funds who were in the original "C" loan were also expected to roll into the new piece, said loan market sources before last week's bank meeting. But a loan investor in the credit said managers are not pleased with the move. "It's a little egregious but lenders don't really have a choice," he said. "It's one of those deals where you kind of roll your eyes and still end up going with it."
Donald Huml, Greif's cfo, disagreed with the sentiment. "It's certainly been an enthusiastic response from our bank group," Huml said, noting results support the move. "Clearly our results have consistently been in line with expectations. We are exceeding the anticipated savings from the performance improvement process, which began March 2003. On Sept. 30, 2003 we completed a transaction to acquire the remaining interest of CorrChoice, which improved our credit profile and cash flow."
Huml explained that Greif presently has a "C" loan that is going to be pre-paid with the proceeds from the new "A" loan and repriced in the process. "There is no pre-payment penalty on the term loan 'C' so this really is an effective way of repricing the facility," he said. The credit amortizes more like a traditional "A" loan than the "C" loan it replaces.
But some investors feel the move may be premature. "I think where their rating is (at BB/Ba3) and where the business is, I can see why some investors may have a problem with 175," one loan investor said. "It's a little ahead of the game. That's why Deutsche [Bank] offered it out to others," he noted, commenting on the decision to offer the loan beyond the existing investor group. But another source said the deal is going well even though no one likes a reprice. Greif, formerly known as Greif Brothers, provides industrial packing products and services. A Deutsche Bank spokesman declined comment.