Deutsche Bank, Morgan Stanley, Citi, Credit Suisse, RBS and Wachovia are joint bookrunners.
The banks had the unfortunate task of marketing the deal just as the US government forced mortgage lenders Freddie Mac and Fannie Mae into conservatorship. And while there was an expectation that the giant mortgage lenders would need to be bailed out, the imminent collapse of Lehman Brothers took the market by surprise, essentially wiping out any tolerance for risk.
The banks placed US$228m (principal) of the issue, scaling back the offering in the face of lacklustre interest. According to market sources, only Wachovia and Deutsche Bank sold, with the other banks in the syndicate holding onto the bonds.
In selling at 70, below talk of 71–72 and well off more optimistic talk of 74–75 that had circulated the week before, the banks lost about US$68m on the sale excluding fees. The steep discount effectively put the yield on the notes at around 18%.
As the marketing period wore on, most of the syndicate banks were understood to have backed off. As the deal priced, only US$325m of the US$980m was being marketed and of the US$228m sold, Wachovia is understood to have sold its entire position, while Deutsche Bank sold a portion of its share.
Banks have been seeking to clear a backlog of LBO debt. According to market sources, selling the Clear Channel bond probably represents the last of the backlog for Wachovia.
Banks that continue to hold the debt are essentially prohibited from selling the remaining US$752m of the notes below 70 for the next three months, but already the bonds have slipped to 68.50–69.50 following the pricing.
The Caa1/CCC+ rated notes due 2016 are not callable before August 2012, and are then callable at 105.375, 102.688 and 100.
The deal was the first LBO-related bond issue after the Labor Day recess. While banks and some investors were enthusiastic that the deal would signal a return to normalcy, anxiety has replaced optimism.
In addition to the 10.75% notes, the banks are also looking to place US$1.33bn in Clear Channel 11%/11.75% pay-in-kind senior toggle notes due 2016. Given the abysmal reception of the 10.75% notes and the struggle to place bank debt, the banks may hold off as long as possible, waiting for signs of improvement in the sector before launching the toggle notes.
The PIK is also callable in 2012 at 105.50, 102.75 and 100. The toggle notes will probably come to market at an even steeper discount.