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First Data to Sell $5 Billion Loan at Discount

First Data on Monday plans to sell a $5 billion loan to fund some of its $26 billion buyout by Kohlberg Kravis Roberts, but concessions had to be given to attract investors, sources told Reuters Loan Pricing on Friday.

The First Data term loan will be sold at a discount of 96 cents on the dollar, with the coupon seen at 275 basis points over the London Interbank Offered Rate (LIBOR), sources said.

That is the high end of the range of interest rates estimated when the takeover financing plans were announced last spring, before problems originating in the U.S. subprime mortgage market sparked a global credit crunch.

The deal will provide the first test of investor demand for more than $300 billion of leveraged buyout debt that was on hold during the recent credit market turmoil.

If investment banks cannot sell this backlog, it could end up on their books and limit their ability to provide liquidity for other deals and transactions.

Despite the stiffer terms, the fact that First Data appears able to move at all on the financing after months of delays was seen as an encouraging development, analysts said.

Though there was no immediate reaction in the high-yield market, strategists said the news is likely a plus.

"I don't think it's phenomenal news but it certainly means there's a bid out there at some price," said Robert Grimm, managing director of the high-yield group at J. Giordano Securities in Stamford, Conn.

The total amount First Data is now seeking to raise in bank term loans has been cut by $1 billion, to $13 billion, the sources said. Investors have been speculating that $1 billion of the needed capital would be shifted to bonds from bank loans.

The current plan is to sell $5 billion of term loans now and $3 billion by year end. Plans for the remaining $5 billion of term loans remain uncertain.

The original financing included $8 billion of bonds. The status of the bond sale also remains unclear.

The final leg of the financing is due in the form of bank revolving lines of credit totaling $2 billion, and those plans have not changed.

Credit Suisse and Citigroup will host the meeting with First Data at 12:30pm ET on Monday at New York's Pierre Hotel, sources told Reuters Loan Pricing.

First Data's initial $5 billion loan is split between a $4 billion U.S. dollar tranche and a $1 billion euro-equivalent piece.

An original issue discount (OID) of 96 will be offered on the Ba3/BB- rated TLB-2, which will carry price talk of 275 basis points over LIBOR with call protection of 103, 101, 101.

The rest of the bank loan consists of a $2 billion, six-year revolver and a $5 billion, seven-year TLB-1, which is pre-payable at par and a $3 billion TLB-3, which is non-callable for 3.25 years.

The financing will include a senior leverage covenant agreed to by KKR limiting the total debt First Data may accrue after the takeover.

It will also include a call premium, which provides investors protection against refinancing or other early repayment risks.

Loan market participants have been keeping a close eye on First Data's loan of late as it will provide a new pricing point for the institutional loan market following the credit troubles of the past couple of months.

As originally proposed, First Data's loan also would have been the largest covenant-lite deal seen so far in the syndicated loan market, a continued sticking point among loan investors.

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