Gee, Thanks! CS First Boston Pays Banks Shut Out of Oversubscribed Deal

In what lenders are calling an unprecedented move, Credit Suisse First Boston recently paid fees to banks that did not receive allocations of a new loan.

Up-front and commitment fees are standard tools used by loan syndicators to entice lenders to join a deal and to compensate lenders if a credit remains largely undrawn.

But many market sources said they were confounded when Credit Suisse First Boston paid these fees to lenders that were shut out of a $200 million five-year revolving credit for Wolverine Tube, a Huntsville, Ala.- based manufacturer of copper and copper alloy.

Credit Suisse First Boston launched the leveraged loan on April 3. The firm, which acted as administrative agent and arranger of the deal, quickly received commitments from 16 lenders of $20 million each, a market source said.

Because the loan was so well received by the market, Credit Suisse First Boston and Wolverine Tube shut out the syndication period early, said market sources. The bank then allocated portions of the loan to only eight of the 16 lenders that committed to the deal.

In an unusual turn, Credit Suisse First Boston and Wolverine Tube then decided to pay fees to the eight banks that were shut out of the syndication, said a market source. The fees amounted to about half of the 12.5 basis point fee that was set to be paid to the banks whose commitments were accepted.

In a further twist, Credit Suisse First Boston then lowered the deal's commitment fees from 12.5 basis points to 10 basis points, a market source said.

"We are very pleased with the reception from the banks joining," said James E. Deason, chief financial officer of Wolverine Tube. Mr. Deason declined further comment. Credit Suisse First Boston also declined to comment.

Typically, when a credit is very oversubscribed, banks either shut out syndication early or they accept all commitments, but dole out significantly smaller allocations. Both options can negatively impact an agent bank's relations with other investors.

For a loan the size of Wolverine Tube's, which is priced fairly aggressively, the latter option would have made the loan unprofitable for participating banks.

"Basically, (Credit Suisse) they invited too many banks," said one market source.

However, some did see an upside for Credit Suisse First Boston.

"I think it's a creative solution to what was an awkward situation, which rewards those banks that committed but won't be part of the financing on a go-forward basis," said Michael H. Rushmore, vice president and head of loan syndications and trading research at BancAmerica Securities Inc.

Pricing for the Wolverine loan began at 50 basis points above the London interbank offered rate and was tied to the ratio of debt to earnings before interest, tax, depreciation, and amortization, according to Loan Pricing Corp.

The loan backs the company's $99 million bond repurchase, for which Credit Suisse First Boston is acting as dealer manager and solicitation agent.

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