Banks Coming Up With More Pitches To Sell LBO Loans
23 Settembre 2011 - 10:24PM
Dow Jones News
Banks are coming up with new ways to sell and clear their books
of loans, especially those made to finance leveraged buyouts.
These loans, made to companies for the purpose financing deals
or for other corporate purposes, usually are paid off first in case
of a default and have a floating interest rate.
With more than $10 billion in loans left to sell, bankers are
taking to some new pitches and tried-and-tested tactics to attract
buyers. While there is little trouble selling loans made by
double-B issuers, companies with lower ratings and part of buyouts
struck with high valuations early summer face sharp rejections from
buyers.
A handful of these loans, including that to BJ's Wholesale Club
Inc. (BJ), Blackboard Inc. (BBBB) and the privately-owned GoDaddy
Group Inc. are in the market trying to find buyers and the right
price that will attract investors to these loans that back highly
leveraged deals with terms that offer little to no protection for
investors.
Already, many of the usual loan-focused funds and retail
investors have walked away, unwilling to take on such risk at a
time when global markets are stressed. Also, the primary attraction
that loans offered over the past year was protection against the
possibility of rising rates.
"While these companies are doing OK, when you lever them up in
uncertain economic times, you have less cushion for a rainy day,"
said George Goudelias, a senior portfolio manager who co-manages a
$4 billion, loan-focused fund at Seix Investment Advisors.
Further, with the Federal Reserve Chairman Ben Bernanke
indicating that interest rates would stay near the current lows
until mid 2013, many investors see little reason to buy loans.
"We have to 'repitch' the asset class," said Robert Schleusner,
cohead of global leveraged finance at Bank of America Merrill
Lynch. "It's not a turn on the dime pitch."
The new selling point: yield.
These riskier loans now offer an average of 8% to 9% yield, up
from the 6% level in May and closer to average yield on high-yield
bonds. Bankers hope that high-yield funds and equity investors
looking to add safer options would consider loans. In addition to
yield, loans offer the possibility of being paid at par. But that
alone may not be enough.
"We need to find additional investors who are receptive to
loans, and adjust pricing and structure accordingly," said John
Cokinos, head of leveraged finance capital markets and syndicate at
Bank of America Merrill Lynch.
The price on BJ's Wholesale's first-lien term loan was cut to 95
cents on the dollar Friday ahead of its pricing later in the
afternoon. The $1.075 billion, seven-year loan with light terms of
protection had started with a price of 97.5 and larger size.
"Loan investors want a lot of discount to originate new issue,"
Schleusner said.
As bookrunners keep knocking off the price, it is likely to eat
into the fees that banks make from these deals, which typically
ranges in the 2% to 3% range. But at this point, banks, which saw a
record-level of high-yield issuance in the first half of the year,
don't seem too worried about that prospect. Rather, their focus is
to find buyers of this risk.
"We try not to hold these assets on our books.... We just have
to find the right level to sell," Cokinos said.
For some investors, the right price might make all the
difference.
"We are looking at it," said James Keenan, head of leveraged
finance portfolios and investments at BlackRock.
"Everything is risk-reward adjusted," he said.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468;
prabha.natarajan@dowjones.com
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