Buysiders are groaning at the thin pricing on a $1.15 billion acquisition credit J.P. Morgan brought to market on behalf of Land O'Lakes, but they also concede that the deal underlines just how trim prices on institutional tranches are becoming in favored sectors. One buysider noted that as funds compete for paper such as food, they don't have much of a choice but to buy into tighter pricing on deals. Even with institutional tranches priced as low as 2 and 21/ 2% over LIBOR, investors expect the credit to make it through syndication. "It's really getting thin," lamented one buysider, admitting that the demand for paper out of the food sector outweighs supply.
Investors are also wary of a potential $110 million downsize on the credit. "The company is in talks with Prudential [Insurance ] to refinance outstanding bonds," said one fund manager, explaining that Land O'Lakes was planning to use a portion of the acquisition credit to pay down $110 million of outstanding notes it issued to Prudential Insurance that mature in 2002. A spokeswoman for Minn.-based Land O'Lakes confirmed the company is in discussion with Prudential to hammer out a new bond deal, explaining this would mean a $110 million scale back on the institutional piece of the new bank debt. Officials at Prudential declined to comment.
Adding insult to injured fund managers, pricing was even more surprising given that Standard & Poor's said it will lower the company's corporate credit rating by three notches to BB+ from BBB+ upon completion of its upcoming acquisition of Purina Mills.