Citigroup held an investor conference call last Wednesday to assuage concerns and get the ball rolling on its $390 million deal for Quintiles Transnational Corp. Several "B" loan investors were dragging their heels, concerned about the potential risk from the company's own investment unit--the PharmaBio Development group.
Late last week, a banker said the $75 million revolver was filled out by about five banks and more lenders were looking at it, while the $315 million "B" piece had accounts committed, but Citi still needed to build the book. The deal was not tweaked structurally after the conference call, the banker noted, stating that pricing remained at LIBOR plus 31/4% for the "B" loan and at LIBOR plus 3% for the revolver.
The pharmaceutical research and marketing firm's PharmaBio unit is an arm of the company that invests in new technology, explained the banker, adding that "some describe it as a venture capital firm within the firm." The PharmaBio group invests in marketable and non-marketable equities and debt and makes indirect investments through entities such as venture capital funds. "It's not something straight down the middle," another banker said, explaining that the unit has a lot of investments and capital contributions it must make. "Is it really walled off?" he asked, also pointing to the possibility that the bank proceeds will go toward the unit's investment obligations.
A third banker said he felt that Citi structured the credit agreement to ease risk stemming from the PharmaBio unit. "There are structural components to the deal that address the aspects of this [PharmaBio] business and de-risk it," he said. "The deal is structured in a way to mitigate any venture risk," the first banker said, adding that buysiders in the deal are still loan investors, not venture capital contributors. A Citi official declined to comment.
Still, the expectation that Quintiles will use a portion of its free cash flow to pursue additional investment transactions makes the unit's risk profile greater than Quintiles' other units, states Moody's Investors Service, in its B1 ratings assessment of the credit (LMW, 6/16). As of Dec. 31, 2002, Quintiles held $111 million in investments on its balance sheet through commercialization or independent arrangements.
The deal backs Quintiles' acquisition by Pharma Services Holding for $1.7 billion. Citi launched retail syndication for the credit earlier this month. Pharma Services was created by Quintiles founder Dennis Gillings, and One Equity Partners--the private equity arm of Bank One (LMW, 4/21). One Equity is contributing an equity commitment of $415.7 million to fund the deal, while $586 million of Durham, N.C.-based Quintiles cash will also be used. The debt package further includes $450 million in senior subordinated notes. Calls to James Bierman, cfo of Quintiles, and Greg Connors, senior v.p. of investor relations, were not returned.