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Among curiosity and enthusiasm
Only US$5bn of the US$15bn total bank package was offered, yet the order book was said to be north of US$8bn by Thursday, with talk of a possible size increase or a sale of some of the B3 tranche.
There was also talk of reverse inquiry into the bridge loan. This describes a distinct change in attitude from weeks ago when the idea of First Data’s loan evoked more panic than commitment. “The market has certainly gained some momentum,” a banker said.
The loan was launched at a well-attended bank meeting at the Pierre Hotel in New York City. It was introduced at price talk of L+275bp with a 96 original issuer discount. The piece is expected to get done on the current terms, a trader said, adding that lead lenders could have cleared the market at an even smaller discount. Earlier market chatter had suggested a discount as low as 93.
Last week’s Fed rate cut generated some support but arrangers
They encouraged investors to step up after the sponsor allowed them to add a senior leveraged covenant to what had been a covenant-lite deal. Investors now shun covenant-lite transactions, especially ones as large as First Data’s.
What is more, the arrangers included a most favoured nation clause through to the year-end, ensuring protection for the first buyers if the arrangers offer more of the loans at a cheaper rate.
“That is very key because if you think the price will go down no one will buy,” said one investor. “They are putting a belt and suspenders around the pricing action of these loans to encourage people to step up. It’s very smart.” Also, any unsold portion up to US$5bn is subject to a lock-up.
Allison assists
External factors are also assisting the deal. First Data comes on the back of
Last Thursday, it returned to sell an additional US$500m at 96.50. As further evidence of the opening up of the loan market, last week’s sale came without the most favoured nation clause that the first portion included.
“First Data, which is a good credit, came on the heels of the Allison trade. You have US$1.5bn of demand that came out at a better level than the market had expected, so it’s advantageous,” a banker said.
According to the investor, Allison’s arrangers Citi,
“Banks are giving signals to the market place that this isn’t a fire sale. They are not going to cut the price to move the merchandise,” the investor said.
Fed cut boost
The Fed’s 50bp rate cut seems to have been just the catalyst needed to kick-start the leveraged credit markets. Aside from generating momentum for the First Data deal, other loan deals are likely to emerge soon. Among other transactions, Symbion’s US$350m senior secured credit facility is now in the market through Merrill Lynch and Citi is out with a US$2.5bn term loan for Flextronics.
Meanwhile, the US high-yield market saw a handful of new issues priced following weeks of inactivity.
RH Donnelley’s success spurred other high-yield issuers to take advantage of the open window last week – and syndicate officials say more paper is expected soon. Allison Transmission’s US$1.1bn senior unsecured notes offering could emerge next month.
Ryerson launched a US$575m fixed/FRN deal through Banc of America on Friday, with pricing expected the first week of October.
Still, the market is not out of the woods yet. According to a trader, the renewed buoyancy seems to ignore the obvious – that the leveraged market has not recovered its strength and the considerable amount of supply yet to tap the market, coupled with weakening economic fundamentals, are weighing on it more than ever.
While solid corporate deals such as RH Donnelley will be viewed as highly attractive given the high levels of cash and a scarcity of quality issuance, investors will remain cautious on weaker rated names, and risky LBOs will face continued challenges.
Potential legislative changes have
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