Several buyside accounts were rumored to be trying to rally investors to block Bank of America's repricing of DaVita's bank credit facilities, miffed that the dialysis-services provider is looking to cut pricing by 25 basis points with a grid to take it down another 25 basis points to LIBOR plus 2%. What is causing the furor is that in July Credit Suisse First Boston repriced the company's bank debt down to the current level of LIBOR plus 21/2%, from LIBOR plus 31/2%, when adding a $200 million "C" portion. DaVita is a Ba3 credit that is very widely held and CLO accounts are saying they simply cannot make money off this spread.
LeAnne Zumwalt, v.p. of investor relations for DaVita, confirmed B of A is in the market with the repricing, noting the company is taking advantage of the current market conditions. She added recent performance figures back up the company's decision. "We have put different performance figures on the table and a better outlook than just a few months ago," she said. "DaVita works well with the owners of the company, debt and equity," she added. "They can make a choice to participate." A B of A spokeswoman, and a CSFB spokesman declined comment. DaVita's debt also includes an $842 million institutional piece.
One banker noted that the situation highlights the dilemma for banks between appeasing issuers and not hurting investors. "If we don't do it, someone else will," he said, referring to banks approaching issuers with offers to reprice bank lines. "CSFB did it first and then B of A got in front of the company," said an investor. Zumwalt declined to comment on relationships with the banks.
Disgruntled investors said the repricing will probably get done. "They could just go to the high-yield market if this does not pass," he said. And in the company's favor it is performing and stays within leverage levels. But DaVita has increased senior leverage to buy back debt when there was an expectation it would not do so, sources said.