Morgan Stanley and Bank of America are trying to drum up interest in PacifiCare Health Systems' $500 million bank deal by pre-marketing the credit to institutional investors in one-to-one meetings before general syndication begins this week. Buysiders have been cool to the credit and say it could test the market's appetite for HMO deals in the hot health-care sector. "This will be a tough deal to get done," said one buysider, explaining that PacifiCare is not only part of the still shaky HMO segment of the market but an HMO with large exposure costs associated with its senior citizens-focused business. Bankers and buysiders noted that Morgan Stanley and B of A have been meeting with investors individually to lure larger institutions into the deal in effort to secure big commitments.
Morgan and B of A, co-leads on the deal, are joined by UBS Warburg and Lehman Brothers, co-syndication agents. Bank of New York, BNP Paribas and Wells Fargo Bank have reportedly landed managing agent roles. Pricing on the $150 million revolver is LIBOR plus 3 1/ 4% and investors get an out of the box spread of 3 3/ 4% over LIBOR on the $350 million term loan "B." Suzanne Shirley, investor relations for PacifiCare, declined to comment on any pre-marketing activities, but said the company is looking to refinance existing debt with the $500 million note issue and the $500 million senior secured credit facility. The company has $705 million drawn on the existing bank facility. This will be taken out with the senior notes due 2011, and the new term loan. The revolver is expected to be undrawn.
One buysider contrasted the deal with the successful Oxford Health Plans deal, which still was reduced from $300 million to $250 million in December. PacifiCare is "still working out problems. They haven't figured out how to handle increasing medical costs and the balance sheet isn't as clean as Oxford," she said. Credit Suisse First Boston and Deutsche Bank led the Oxford deal. "This is a great market at the moment for health care, but this deal will be challenging," noted a banker who follows health care, explaining that HMOs function as insurance companies and therefore don't have assets available to shop asset-based deals to lenders.