UBS Warburg launched syndication of the $190 million credit for Herbalife last Thursday. The credit is facing a tough reception with investors asking where the security is, but bankers believe the paper starved "B" market will carry it through syndication. Pricing is slightly lower than market rumors suggested on the $165 million term "B" loan. A banker said pricing is LIBOR plus 4%, though there was talk last week of LIBOR plus 41/ 4%. Investors described Herbalife as asset light, and there are concerns that the security is inadequate. But bankers said the company "generates enormous free-cash flow." Investors concur that in today's market the cash flow aspect will be enough to drive the deal through syndication.
In addition to the security concern, another banker said the mark-up on the product is enormous, but there is tremendous pricing pressure that could force down the margins. This fear in conjunction with the security aspect is deterring some investors. The bank debt, which also includes a $25 million revolver priced at LIBOR plus 31/ 2%, backs the purchase of Herbalife by private equity firms Whitney & Co. and Golden Gate Capital for $685 million. A $220 million senior subordinated note issuance is also expected as part of the debt financing. Based off last year's EBITDA figure of $120 million, senior leverage is approximately 1.4/1.5 times and total leverage will be closer to 3.5 times.