Buysiders last week faced either approving an amendment on Dean Foods' $1 billion "B" tranche that will leave them 50 basis points out of pocket, or standing by while a high-yield bond deal takes out at par all the bank paper-- which was trading above 101. As Loan Market Week went to press, the 100% approval from the funds was about to be clinched, said one investor, who said, "Nobody is happy to lose 50 basis points, but if we don't approve, they have been shown a bond deal they will take." Pricing is currently at LIBOR plus 3%, but the amendment will cut the pricing grid by 1/2% on the Wachovia Bank and BANK ONE-led loan.
Cory Olson, v.p. and treasurer for Dean, said bond deals were not formally offered to the company, but noted that the company reviewed all the options available to it before choosing the amendment. But bankers said a whole range of commercial and investment banks on Wall Street had been pitching bond deals. One banker said the bonds would have priced at 8%, which on a relative-value basis is about LIBOR plus 2%. "Even after issuance costs this is very attractive money. But, they also don't want to do a scorched earth policy." Another investor was grateful for the amendment rather than a refinance. "The loans are trading considerably above par, and even with the amendment factored in the loan is trading above par and a half," he added.
The environment starkly contrasts to six months ago, when the company had to pony up a 50 basis points ticking fee to investors (10/21). Officials at the banks declined comment.