Warnaco Group's levels dropped more than a dozen points after the company announced it was under investigation by the Securities and Exchange Commission, and there is expected to be a rush to unload the paper. Bids on the company's bank debt fell from 40 to the high 20s as dealers holding the paper started looking for a way out. "All of the big dealers are trying to push their own paper because they have such large exposure," one market player noted. "They are trying to sell their paper at any price just to get out, so they are undercutting other banks' offers." Calls to the company were not returned.
The paper is at levels that typically only a vulture could love, but no trades could be confirmed by press time. "All of the banks are just trying to get their arms around [the announcement]," said a dealer. "It's not that active right now; people are surprised."
Salomon Smith Barney and J.P. Morgan Chase are reportedly the biggest players in the name. Officials at those banks declined to comment.
Last week the company disclosed an SEC investigation into whether Warnaco violated securities rules related to the preparation and publication of various financial statements and reports. Dealers noted that there had been some speculation around the company since it released in its 10k a little more than a week ago. "People are unsure about the numbers they have in hand because of the SEC investigation," a trader remarked.
Meanwhile, Warnaco is negotiating with its lenders to get amendments to the bank deal. Last month the company announced that it wasn't compliant with certain financial covenants of its financing agreement. The company has received a waiver through May 16. The company has a $1.04 billion deal that breaks down into two tranches. Pricing is LIBOR plus 11/4 %. Bank of Nova Scotia, Société Générale, Citibank, and Commerzbank are the lead arrangers, according to Capital DATA Loanware.