Low pricing has stalled the syndication of two large loans.
Citicorp has signed up only a handful of banks for its $1.29 billion credit supporting Fox Kids Worldwide's acquisition of International Family Entertainment. The bank is restructuring the loan, for which commitments were due Friday, a Citicorp spokeswoman said.
Meanwhile, Chase Manhattan Corp. and Bankers Trust New York Corp. are having trouble syndicating their $1.8 billion loan for Fred Meyer Inc.'s acquisition of Smith's Food & Drug Centers, market sources said. The financing, originally slated to come to market as a $2.2 billion credit, was revamped before it was launched July 23.
Both credits are examples of how heated competition in the bank loan market has driven down pricing to levels unacceptable to many investors, market sources said.
A leveraged credit, the Fox Kids loan is divided into three parts, according to Securities Data Co.: a $665 million seven-year revolving credit and a $275 million revolving credit, both of which have pricing tied to the company's leverage ratio ranging from 50 basis points to 250 basis points over Libor.
The third portion is a $350 million, nine-year term loan, with pricing ranging from 100 basis points to 275 basis points over Libor.
Citicorp launched the loan-which was heralded as a sign of the bank's return to the leveraged syndications market-at a bank meeting in the third week of July. The credit got some commitments but not as many as sought by the due date of Aug. 1, a Citicorp spokeswoman said.
According to one lender who analyzed the deal but did not take a portion of it, in addition to pricing concerns, the loan was aimed at leveraging the company's balance sheet to more than seven times earnings-a ratio the lender termed "aggressive."
Despite the lack of commitments, Citicorp closed and funded the deal as scheduled, the bank spokeswoman said.
At Fox Kids' request, the structure of the transaction will be changed to substitute preferred stock for some subordinated bank debt.
The Fred Meyer loan is considered a near-investment-grade, or BB, credit. Drawn spreads over Libor for BB-rated credits are typically greater than the 30 basis points that Chase and Bankers Trust are offering on the Fred Meyer loan.
Recent BB nonleveraged, all-in-drawn spreads now average 71.5 basis points, according to Loan Pricing Corp. And that has caused some lenders to shy from taking a piece of the Fred Meyer credit.
"It just becomes an economic conversation about how to hit an ROA or ROE target that makes any sense today when you ask them to put money in at Libor plus 30," said Robert Barmore of Harrison, N.Y.-based Meenan, McDevitt & Co., a secondary loan brokerage. "I wouldn't say they're losing money on it, but their underwriting margins are being pressured by market reluctance."
To date, three banks have committed a total of $500 million to the loan, including a $200 million commitment from Wells Fargo National Bank.
An additional 25 to 30 institutions are still considering the credit, which is expected to close in September, said a source close to the deal.
