Morgan Stanley and UBS Warburg pulled a $230 million refinancing credit for New World Pasta from the market last week after investors balked over the terms of the deal and the company refused to pay the new tougher terms investors were demanding. "The company wanted to repay $55 million of subordinated debt, replace it with senior bank debt and cut pricing," said one buysider, echoing the concerns of fellow investors.
The failure to sell the deal prompted snipes that Morgan Stanley, which led 60% of the deal, bid over aggressively to sponsor Joseph Littlejohn & Levy for the business. But Wayne Robison, cfo of New World Pasta, disagrees. "Essentially, at the lenders meeting, we all believed the deal would get done. Then, after the J.P. Morgan, Citibank, Enron-linked scandal, the market changed," said Robison. The terms required to lure back investors went higher and became unacceptable, he added. This financing was elective from the beginning, and so it did not need to be done. One banker commented, "It was a function of the market, with eight deals flexed this week." Moore Corp. led by Salomon Smith Barney went to LIBOR plus 3%, while Headwaters has a 11/ 2% upfront fee and a LIBOR plus 33/ 4% spread, he noted.
Some buysiders said price, typically, was the main problem. "If they would have offered the deal at LIBOR plus 4% [the existing spread] with a decent upfront fee then investors might have taken it," said one buysider who considered the deal. The loan was originally offered at LIBOR plus 31/ 4% and was flexed to LIBOR plus 33/ 4% before it was yanked.
But others cited the issue of the sub debt replacement as the primary source of contention. JLL wanted to increase the size of the term loan to refinance an 8% payment-in-kind term loan "C" of $55 million in accreted value. The "C" loan from JLL helped finance the acquisition last year of pasta businesses of Borden Pasta Group from Borden Foods, said an investor. JLL wanted to get rid of the PIK note as, next month, the investment cannot be returned to the fund to be reinvested. Robison said New World desired to grow the revolver and enlarge the "B" to aid liquidity.
Merrill Lynch, UBS Warburg and Bank of Nova Scotia were among the banks pitching for the business, bankers said, though Robison declined to comment. "The bids and commitments from the others were not that different. Also UBS came on board," he rejoined. Officials at the banks either declined to comment or did not return calls.