The anemic high-yield bond market is starting to impact bank deals as bond portions of packages are shelved and bank pieces figure to be either reworked or pulled. No company with purely non-investment-grade ratings has sold corporate bonds since Sept. 11, and at least two bond/bank packages are feeling the pinch.
The first to be touched is the PETCO Animal Supplies re-syndication led by Goldman Sachs and Wells Fargo. A Goldman Sachs banker explained that syndication was contingent on the completion of a $200 million, 144A note offering. The bond roadshow was being held the week of Sept. 11 and pricing was scheduled for the Thursday of that week. The bank meeting was then to be held on Sept. 19. The deal is still alive, but on hold. PETCO received money from Goldman and Wells Fargo last year, but the aim of the re-syndication was to reduce the banks' exposure and the loan was to be much more attractive with the bond issue. Calls toJames Myers, cfo of PETCO, were not returned. Another deal hampered by a spiked bond issue is Bear Stearns' credit for Appleton, which is still slogging through the loan market (see story, page 1).
One banker noted investors look to have junior capital in the structure. When a planned bond offering tanks, there is the potential for private credit, but this is expensive, he added. Term loans can be upsized, but in this market that can be equally tough. Bankers and investors said yields in the bond market are such that coupons on bank debt will have to increase or original issue discounts, already a common sight this year, are likely to appear much more frequently.
The bond market is also impacting companies that are looking to replace bank debt with new bonds. Sweetheart Cup last week postponed indefinitely a $275 million bond offering, citing the extremely high yields investors are demanding after the attacks. Hans Heinsen, senior v.p., cfo and treasurer, Fonda andSF Holdings, which controls Sweetheart Cup, said the weak bond market exacerbates conditions in the bank debt market as investors and bankers look to the bond market to refinance bank debt. "The bank market is unpredictable right now, and it is tough to initiate transactions without relationships," he said.