Appleton Papers is looking for a price reduction of 100 basis points on the coupon of its existing $115 million "B" term loan, hoping to follow in the footsteps of other companies that have re-worked pricing in a market with increased demand for paper. But investors are saying that even in an issuer's market, this credit may be the one that does not clear the market. Bankers and buysiders question whether the 1% cut will pass the credit hurdle as underwriter Bear Stearns struggled last fall to get the deal syndicated the first time around. "They may fall flat on their face with this one," said one buysider who passed on the deal initially.Bill Van Den Brandt, spokesman for Appleton Papers, referred calls to CFO Dale Parker, who did not return them by press time.
Bear Stearns is carving out a "C" tranche priced at LIBOR plus 31/ 4% with the strategy of filling this tranche with new investors and using the proceeds to pay down the "B" tranche, according to market sources. "I doubt there's going to be enough new investors to fill a "C" tranche," said an investor. "It was a leap of faith the first time around," he said. A banker on the deal dismissed this strategy and said Bear Stearns will only shop the "C" tranche to current investors, so as not to alienate current investors or infringe upon their allocations, he said. But buysiders question if they should buy into a new tranche at a lower price for a company in the carbonless paper market, which is seen by many as a sunset industry.
Bear Stearns stands behind the deal and the banker said that due to strong cash flow the company has pre-paid $65 million on the existing facility bringing down the total original deal size to $275 million from $340 million, reducing the term "B" to $115 million from $150 million. He also noted that investor demand is so strong for paper right now he thinks the firm could get it done at LIBOR plus 3%. "By doing it this way we think we're leaving something on the table," said the banker about pitching a "C" tranche rather than just totally refinancing.
Investors are far less confident Bear Stearns will pull it off, noting that the deal was originally sold at a 13/ 4% discount in addition to a flex up from LIBOR plus 31/ 2% to 41/ 4%. "If you bought at a discount you might want to take the money and run," said one investor, noting that with the discount many investors may rather tap out at par, where the credit is trading now, rather than re-sign.