A handful of borrowers have come to market in recent weeks to score cheaper deals via refinancing, pinching investors eager to stay in deals but loath to give up precious basis points. Iron Mountain,Caremark RX, Isle of Capri and Printpack have all cashed in over the past few weeks, shaving as much as 3/4% off the pricing on their deals. Investors are forcing smiles and chipping in for the refinancings, but it isn't easy. "You don't really want to see the paper in your portfolio deliver poorer returns," said one investor, noting that a name that was paying LIBOR plus 3% or more is now considerably less juicy. "But you do need to stay weighted and stay in on a deal."
The latest big cut came from Caremark Rx, which has improved its credit profile and is attempting to cut pricing on its $225 million "B" term loan by 3/4% through lead banker Bank of America. "We refinanced the bank facility last year leaving a "B" loan outstanding," said Howard McClure, executive v.p. and cfo of Caremark. "But since then, the company has improved the credit, been upgraded to BB+ by Standard & Poor's, and so is looking to improve interest payments." Current pricing on the "B" loan is LIBOR plus 3%. The cut is warranted, said one banker. "They have performed very well and earned the credibility they have with investors." She acknowledged that it is a bit of a pick-your-poison situation for investors. "Institutional investors are so flushed with cash that they would rather have a quality asset, albeit at a lower price, than forgo the asset and opt out of the refinanced deal," she said.
John Kenny executive v.p. and cfo of Iron Mountain said the prevailing credit environment and performance of the company made the refinance possible. "Iron Mountain was able to shave off 1/2% from its interest payments saving $1 million a year." "It's supply and demand. A lot of money is looking for term debt," he noted. Isle Of Capri saw more than $800 million in commitments come in on its $250 million term loan "B" last week at a price of LIBOR plus 23/ 4%, down from the LIBOR plus 31/ 4% the company had been paying. The replacement of senior bank debt with bonds helped the credit profile of the company, while a lack of gaming paper drove demand higher, said a buysider. The positive demand for gaming paper was the reason behind the timing, explained Rex Yeisley, senior v.p. and cfo of Isle of Capri (LMW, 4/1). Printpack scored a bank deal 1/2% cheaper through SunTrust Bank and BANK ONE.
The market is still conservative, one banker cautioned, and only the right issuers, in the right sectors are benefiting. That underscores one of the positives for investors in the refinancing wave: the credit profile of the deals is improving. That allows repeat issuers to successfully revisit the same investor group looking for any new issuance, said a banker.