A new $210 million add-on term loan for Terex being led by Salomon Smith Barney and Credit Suisse First Boston has raised the ire of investors as the new paper is priced more generously than existing debt, sending levels for the old paper down to the mid- to high 90s. That twist has some existing investors looking for an exit and others asking for the old paper to be repriced to the same level as the new issue.
"Compare the yields on pari-passu paper and the old loan is not worth as much," said one investor, who hinted it might be in the company's best interest to deal. "What happens in the future when the company needs an amendment?" But the lead banks are said to be confident that the new loan will clear the market and no reprice is expected on the old "B" piece, which will find its appropriate level in the secondary market. Bankers at CSFB declined to comment, and officials at Salomon did not return calls. Calls to Kevin O'Reilly, v.p. of investor relations for the construction equipment manufacturer, were not returned.
The new "C" loan is priced with a 75 basis point discount and a spread 50 basis points higher than the existing "B" piece, which is priced at LIBOR plus 2%. Bankers shrugged off the reaction from investors. "It is always the case that if a company has tradable securities out there, the initial price goes down," one banker said.
The existing $375 million "B" piece, however, has been described by one banker as "the straw that broke the camel's back," as the LIBOR plus 2% spread was considered a low point for investors starving for paper. Though it was more than three times oversubscribed in syndication, the paper traded down once the market turned (LMW, 7/15).
Adding to the pressure on the paper, Terex had a carve-out in the credit agreement that allowed the Westport, Conn., company to issue more debt. "It was not a surprise," said one banker, who noted that some investors simply did not anticipate the built-in volatility. Furthermore, the market has moved substantially from the summer and nobody expected the shift to be this big, he added.
The add-on loan backs the $270 million acquisition of Genie Holdings. Terex announced plans to acquire the aerial work platform in July to diversify its product offerings (LMW, 9/23).