TRW Automotive's $1.81 billion acquisition bank deal is finally steering into the U.S. retail market today, but many prospective investors are idling in neutral on the credit's hefty $900 million "B" piece. Market players are weighing the mammoth size of the loan, the company's 3.5 times total leverage and declining margin figures-- all against the backdrop of a lackluster auto industry. "The auto sector's a tough sector. There's a lot of problems there," one buysider noted. "I would expect mixed reviews on this," a banker acknowledged, but stated that TRW is one of the strongest names in its sector. The credit backs The Blackstone Group's $4.7 billion buyout of Northrop Grumman's TRW Automotive business, announced last quarter.
One investor said takers on the eight-year "B" loan might be looking for a little more juice on the LIBOR plus 4% coupon. "It looks like a very doable credit if it made LIBOR plus 5%," he said. A banker countered that the existing pricing was in line with the BB/Ba2 ratings. A big factor is the size of the tranche. One buysider said an improved market would absorb such a large loan more easily than last year's directories deals and would not demand as many pricing incentives. He explained that investors were more fearful then than they are now.
John Puchalla, associate analyst at Moody's Investors Service, noted that the auto parts market in general is soft, specifically the heavy-duty truck market to which TRW caters. But he said TRW is one of only two speculative-grade auto parts companies in the Moody's universe that is rated as high as Ba2.
Credit Suisse First Boston, J.P. Morgan, Lehman Brothers, Deutsche Bank and recently joining Bank of America lead the facility and have obtained commitments through both the senior and European retail levels. CSFB, J.P. Morgan, B of A and Lehman officials all declined to comment, while Deutsche Bank bankers did not return calls. The credit also includes a six-year, $500 million revolver with a 50 basis point commitment fee and a six-year, $410 million "A" piece. Pro rata pricing stands at LIBOR plus 31/ 2%. The transaction is expected to close this quarter. A Blackstone spokesman declined to comment, while TRW officials could not be reached by press time.