Cendant Revelation Spurs Investors To Push for Revision of $3.25B Loan

Investors in a $3.25 billion term loan to Cendant Corp. said they will press Chase Manhattan Corp. to restructure the financing, after an announcement by Cendant Thursday that a predecessor company had reported $640 million in phony profits.

"We have confidence in the current management," an investor in the loan said. "But it's probably going to get redone at a level where it will make you feel better."

The loan, which closed in June, was parceled out to more than 20 investors. Chase and Cendant, which has dual headquarters in Parsippany, N.J., and Stamford, Conn., increased the original $2 billion financing by $1.25 billion in late May.

Bankers at Chase declined to comment on whether the loan would be refinanced. But sources close to the deal said Cendant executives held a conference call with participating banks Friday afternoon to help allay concern about the loan's repayment.

It was unclear how much of the loan has been repaid. But Cendant, a franchise company whose brand names include Avis and Howard Johnson's, was given what investors say are favorable terms.

Pricing for the 364-day term loan started at the London interbank offered rate plus 0.625 percentage point and ranged to Libor plus 1 percentage point at duration.

If Cendant's credit ratings were to drop below investment grade, 0.5 percentage point would be added to the interest rate.

Any new package would carry far more lucrative returns. Chase and Cendant are likely to return to the market for refinancing of the existing loan plus $2 billion in new cash.

Bankers speculated that Cendant needs the cash because its stock price has fallen. About $2 billion of Cendant's $3.1 billion purchase price for American Bankers Insurance Group Inc. was supposed to be paid in stock but will likely be switched to cash.

Market participants said the Cendant credit is strikingly similar to a recent $1.7 billion loan to Sunbeam Corp. arranged by Morgan Stanley Dean Witter & Co. In both cases, the full extent of the borrower's woes was not known until late in the loan process.

Cendant "still has a $15 billion market cap," however, one investor said. "Sunbeam is a lot closer to bankruptcy."

Chase is lead arranger and administrative agent. BankAmerica Corp. is syndication agent. Co-documentation agents are Barclays Capital, Bank of Nova Scotia, Credit Lyonnais, and NationsBank Corp.

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