CenterPoint Energy's new loan zipped up to 105 in its first week of trading, leaving bank loan players agog. The deal's hefty LIBOR plus 93/ 4% pricing and 3% LIBOR floor was a hit with investors. But some bankers said the company, which desperately needed the financing to avert a potential Chapter 11 filing, was skinned by Warren Buffett's Berkshire Hathaway and Credit Suisse First Boston. "Bank debt should not trade out of the box at 105," said one dealer, making the point that the deal was too richly priced.
Still, the company needed the money and as one player noted, "Buffett would not have gotten into the deal for much less." Marianne Paulsen, director of investor relations at CenterPoint, said the company took what it could get. "We would have liked to have lower pricing. [But] we were facing this $400 million requirement and we were coming up against the deadline," she noted. Gary Whitlock, cfo, was out of the office last week and could not be reached by press time.
The "B" loan traded on Nov. 8 in the 103 context before surging even higher with trades in the 105 range last week. Most of the buyers were investors who were cut back steeply in allocation. Buysiders were unsure how high the bank debt could go, but one dealer noted that at these levels the paper was in the "nose-bleeds." A banker familiar with the deal defended its charge 105. "It indicates that once the company raised the money, of course they're going to break above par," he said.
There was also some grumbling in the market that the $1.3 billion Berkshire/CSFB deal nixed CSFB's simultaneously launched $420 million line with Bank of America and Deutsche Bank. Investors were looking at two deals in the marketplace for the same company. "CSFB saw the opportunity to take more fees," one banker carped, commenting that the company was charged considerably more in the final deal. But another banker asserted that the company's needs must be considered, and Buffett's bigger offer was what CenterPoint required. Bankers involved all declined comment on the matter.
CSFB oversubscribed its stake in the line, according to bankers. Berkshire Hathaway is holding $900 million, therefore leaving the co-provider with the same approximate $400 million stake as was the amount in the initially launched deal with Deutsche and B of A. A banker could not say which lenders joined on to the credit, but reportedly Angelo Gordon and Highland Capital signed on. The line carries the same terms and second mortgage bond securities as the originally planned $420 million facility, the banker said. Officials at Highland and Angelo Gordon did not return calls.