Goldman Sachs is starting to take a "bond-like" approach to pricing and syndicating its deals by gauging the market clearing level for the credits. Where loans typically hit the market and then flex up or down based on investor response, Goldman is looking to be "proactive rather than reactive" in its pricing, said Steve Hickey, co-head of Goldman's bank loan business. As first reported on LMW's Web site last week, the aim of getting pricing input from investors early on is to ensure momentum and interest in the primary market, helping the deal trade better in the secondary market, Hickey said.
The move is expected to sit well with investors. "Rather than the underwriters trying to artificially determine appropriate pricing, we prefer if they bring the deal out to the market similar to the way bond deals work and ask accounts for feedback," one investor said. "Clearly none of the loan buyers like the idea that they buy a deal and the deal fails in syndication, then the deal trades down. Deals should be priced to be fully distributed and have a reasonable trading level."
Goldman's recent deal for IMC Global, co-led with J.P. Morgan Chase, came out with investor-influenced pricing after an initial turn in the market struggled. The credit's "B" tranche was originally priced at LIBOR plus 2 3/4 %. Hickey said Goldman officials moved in earlier than would be done in a standard price flexing, and they polled investors to find out where they would come in on the deal. Goldman officials then tallied the responses to determine at what pricing level the deal would get fully funded. The result was LIBOR plus 3 3/4 % on the $290 million term loan "B." The $210 million revolver is priced at LIBOR plus 3%, with a 50 basis points commitment fee. A Chase spokeswoman declined to comment.
Traders say the paper is now 100 1/2 bid as a result of the pricing adjustment. Calls to J. Bradford James, cfo of IMC, were referred to a spokesman. "If Goldman's approach is some new approach, that's something for them to speak about," he said.