Some of the lenders on Allied Waste Industries' recently syndicated $1.5 billion revolver reportedly were paring their exposure in the secondary market last week, selling off the loan as low as 921/2. Market players said the banks signed onto the revolver last month to win investment banking fees. One trader explained that although it was logical to believe that the investment banks, which took on the largest portions of the revolver, were the ones selling, some of the banks with smaller exposures were doing the trades. A total amount on the trades could not be determined. There was some doubt that paper actually traded hands. "They would certainly lose money on that paper," one dealer said, noting the steep discount at 921/2.
J.P. Morgan and Citigroup lead the refinancing credit, with UBS Warburg, Credit Suisse First Boston and Deutsche Bank also serving as top tier agents. The five banks were said to have each committed $175-225 million to the revolver and earned managing roles on the company's common stock issuance, three-year mandatory convertible preferred stock deal and 10-year note deal (LMW, 4/7). Scotia Capital, Bank One, BNP Paribas, Credit Lyonnais, FleetBoston Financial and Wachovia Securities are believed to have signed on for large pieces of the revolver, as well. The banks that took on commitments at the second tier reportedly received capital markets fees in the amount of $750,000 (LMW, 4/7). One trader noted that rumors suggested the fees were actually anywhere between $750,000 and $1.5 million. Fees in that range could take the sting out of any losses incurred by selling small amounts of the paper at 92.
Pete Hathaway, senior v.p. of finance of Allied Waste, and Tom Ryan, the company's cfo, "were not interested in having a discussion" on the subject of trading of the company's loans or the fees paid for the investment banking business, according to an assistant. But during the company's conference call last week, Hathaway spoke about the importance of the new revolver. "Liquidity is highly valued in the market and has been enhanced for Allied in several respects. With the support of our relationship lenders and the tough banking marketplace, we've been able to secure commitments for a new revolver that allowed us to upsize our old revolver by over $200 million dollars," he said.
One banker compared the deal with AT&T Corp.'s 364-day, $4 billion commercial paper backstop, noting the terms on the Allied Waste deal required lenders to sign on for a longer period of time. "How can you pitch this stuff with a straight face? This is five-year exposure to a fairly leveraged company," he said, noting that his firm "cared" at 92. Incidentally, the AT&T facility was sold down into the 94-97 context by the deal's managing agents before the loan broke into the secondary market (LMW, 9/02). Allied Waste's new credit also includes a $1.2 billion "B" loan and a $200 million institutional letters of credit facility. The company's new "B" piece traded in the 1001/4 1003/8 range.