Several of the lead banks on Xerox Corp.'s $1 billion credit facility were said to be offering the $700 million revolver at a steep discount shortly after allocation last week, with offers in the high 80s to low 90s. Bankers and investors said of the six underwriters, Citigroup, Deutsche Bank, Goldman Sachs, J.P. Morgan, Merrill Lynch and UBS Warburg, several were seen offering the revolver at these levels. One investment bank was rumored to have sold off between $50-75 million of the loan. A Xerox spokeswoman declined comment and officials at the lead banks either declined comment or did not return calls by press time.
One buysider who saw a bid on the revolver at 89 said the banks were given incentives to participate on the loan. The bank line was part of a $3.1 billion recapitalization and the capital markets business justified any loss on making the loan, he explained. A banker familiar with the situation said Xerox offered 40 million shares of common stock at 101/4 and approximately $800 million--upsized from $650 million--of mandatory convertible preferred securities. A $1 billion offering of seven year and 10-year senior unsecured notes was increased to $1.25 billion, with pricing of 71/8% of 75/8%, respectively. All of the six banks had roles on the other capital markets business. As LMW was going to press, the revolver was said to be trading in the low 90s. The term loan was being offered at 991/2, with the unfunded nature of the revolver making it a much less attractive investment, said a loan syndication source.
Investment banks have for some time been selling down their commitments to large unfunded revolvers that are often tied to ancillary capital markets business. The loans may be required to win more profitable investment banking business, but are a drain on resources. Hedge funds meanwhile have been buying into unfunded revolvers to increase returns. If the hedge fund does not have to put up any capital to fund the loan, it simply buys the paper and receives the commitment fees on the unfunded line (LMW, 1/6).