Credit Suisse First Boston is using a synthetic term-loan structure in its deal for Washington Group, further highlighting the continuing shrinkage of banks willing to fund the pro rata part of deals and the increasing importance of institutional money in the market. The deal is similar to the innovative Premcor Refining Group credit launched by Deutsche Bank in the summer, with the synthetic functioning as a fund to back letters of credit. "The structure is designed to expand the universe of institutions able to sign onto the deal," a banker familiar with the loan said.
It is too early to say how the deal, launched at the end of last month is progressing, though after coming out of bankruptcy the credit does have a story, said a banker. Pricing on the $350 million three-year loan split between a $200 million and a $150 million revolver is LIBOR plus 4%. The $200 million loan offers a 11/ 2% commitment fee and the $150 million portion offers 3%. The credit is designed to fulfill the needs of portfolio managers to invest in funded loans with a stream of income.
Similar to the Deutsche Bank Premcor deal (LMW, 7/29), CSFB converts the letter of credit structure into a structure for investors that mimics pricing on a fully funded term loan. The institutional money is invested into a fund to back letters of credit for Washington Group and CSFB will then invest the fund so that it generates flat LIBOR for buysiders while Washington Group will provide the spread through fees for the letter of credits.