Bankers said last week an attempted carve out by J.P. Morgan Chase to create a $150 million term loan "B" from Interstate Bakeries Corporation's $800 million credit, will provide a valuable indicator as to how far institutions are prepared to go to attain paper. Priced at LIBOR plus 2 1/4% with 15 basis points offered upfront, bankers are curious to see if investors blink, as the levels are tighter than what the market has been getting.
"To be fair the deal should maybe be priced at LIBOR plus 2 1/2%, though it is virtually investment grade, but that is still very low for institutional investors," said a banker familiar with the deal. One banker questioned, "How hard up are they?" There has been price flexing to indicate the market is hot right now, fuelled by CDO and CLO activity, but most oversubscribed deals that are flexed are still offering over 3%, he said.
If J.P. Morgan wanted to, the bank could have priced the deal at 3%, but the company has probably never had a term loan before, noted a banker. Paul Yarick, treasurer, confirmed that Interstate "has never had a term loan "B" before, but it was always in discussions in the new financing." In order to get it done, the "B" is needed, he added, referring further questions to a spokeswoman at J.P. Morgan. Chase Manhattan Bank has been Interstate's banker for 15 years, said Yarick, commenting on the choice of bank. Calls to a Chase spokeswoman were not returned by press time.
The fact that the "B" tranche is being carved at the expense of the pro rata is indicative of the market right now, bankers commented. Originally a $300 million revolver and a $500 million term loan "A", the pro rata is priced at LIBOR plus 1 3/4% with commitment fees of 3/8%. The revolver will remain the same, with the term loan "A" downsized to $350 million. A few banks are said to be considering managing agent roles, but the deal struggled after launching last month.