Allied Waste Industries will be launching a $3 billion refinancing deal to retail this Wednesday and market players are eyeballing the $1.5 billion "B" piece's LIBOR plus 31/2% coupon. While the question was raised of whether pricing was aggressive enough to attract enough interest, bankers and investors said the name was too big and too liquid to be passed up by investors. J.P. Morgan and Citibank are leading the credit with UBS Warburg, Credit Suisse First Boston and Deutsche Bank also acting as top tier agents. Bankers on the deal either declined to comment or did not return calls.
Some buysiders were concerned that without heftier pricing, the seven-year "B" loan could trade at a discount in the secondary market, like its existing debt had been before refinancing rumors surfaced. The market for Allied's "B" loan dipped down into the low-to-mid 90s over the course of last year, according to LoanX. But another investor noted that the new deal is priced higher than the existing LIBOR plus 23/4-3% term loan paper. "It's a better spread for what's going to be a better credit," he added, explaining that the new deal is smaller and coincides with stock and bond deals that lower the company's leverage.
"One of the problems with the first Allied deal, was that it was so big ($7 billion)," he said, noting that the new deal should trade at or close to par. "It's a better price. I don't [care] where it trades. Is it going to trade at 101? No," he added, stating that it is a credit most investors will hold onto. He also noted that investors were already circling a big chunk of the "B" loan last week. The upfront fee was not yet determined but could range from 1/4-1/2%, a banker added. Tom Ryan, cfo, and Michael Burnett, v.p. of investor relations at Allied, did not return calls before press time.
Lenders thought that the $1.5 billion revolver priced at LIBOR plus 3% would have been the toughest tranche to fill out, but the five lead banks came in with commitments ranging between $175 million to $225 million in exchange for managing roles on the company's $100 million common stock issuance, the $300 million three-year mandatory convertible preferred stock deal and $300 million, 10-year note deal. A banker also said that six out of eight proposed second tier agents accepted the revolver with $100 million commitments at an original issue discount of 98.5 with $750,000 in capital markets compensation fees from the stock and bond deals. He declined to name these lenders. An investor said that the old revolver was not tapped, so the banks probably did not mind rolling over their commitments. J.P. Morgan leads Allied's 1999 credit.