The Allstate Corporation closed $1.1 billion in aggregate credit facilities on June 8, switching leads and opting to refinance six months early to beat the end-of-the-year rush, said Joe Garnett, treasury director. The company went out to bid for the deal and chose Bank of New York as its lead. Chase Manhattan Bank and J.P. Morgan were co-leads of the original deal and did bid for the new facility. "[Bank of New York] offered a more attractive syndication strategy, pricing, and up-front fees," said Garnett. "We knew going into this process that the market is much tougher than it was five years ago."
Garnett said Bank of New York advised the company to go with a small bank group, a strategy that appealed to the company. "It requires larger commitments from each of the participants, which causes you to have very powerful conversations," he said. "It pays major dividends on the back-end; you're most likely to have a deeper reciprocal relationship down the road, and banks are looking for that. It was a long-range view that we liked."
The company's previous $1.5 billion deal wasn't due to expire until December, but officials sensed they would get a more attractive deal if they refinanced now because the end of the year tends to be a tougher time to secure financing. "As we looked at trends, it's much tighter in December. Typically a lot of deals are done in the fourth quarter," Garnett said. "It's more challenging then, so we didn't want to wait." Allstate, based in Northbrook Ill., is the second largest personal lines insurer in the country. Auto and homeowners lines account for 65% of its sales.
The company also opted for a smaller deal with an activated accordian feature. It allows a facility to be increased without refinancing. "The marketplace is more expensive, and we didn't feel we should pay a premium for excess liquidity," Garnett said. The financing breaks down evenly between a five-year revolver and 364-day revolving credit facility. Garnett says the deal, which was originally set to be $1 billion, was oversubscribed. The fee on the 364-day facility is six basis points; the facility fee on the five-year revolver is eight basis points.