Bank lenders were reluctantly committing themselves to a NationsBank- led $1.5 billion facility for Republic Industries.
The loan for the investment-grade diversified car retailing company is to refinance a $250 million credit, as well as a $150 million tax retention operating lease, and could be used for acquisitions and the issuance of letters of credit.
As the April 1 deadline for commitments approached, some bankers said they were uncomfortable with the pricing and structure of the deal for a company managed by Florida billionaire H. Wayne Huizenga.
"From the standpoint of credit quality, this deal was quite aggressive on pricing," said Michael C. Mauer, a vice president in charge of distribution and trading syndicated loans at J.P. Morgan & Co. Despite its pricing concerns, Morgan committed $75 million to the deal.
Others who were similarly inclined to participate in the transaction said they had some reservations. They said that the pricing and structure of the transaction reflected continuing competitiveness in the crowded syndicated lending market.
Another lender whose bank was preparing to commit itself toward the end of last week said his bank also had reservations about the deal.
For one thing, he said, the debt-to-cash-flow ratio is based on a consolidation of the cyclical automobile and electronics businesses with the more stable waste business.
Bankers said the amount of debt Republic expects each of its banks to hold is relatively high, which has scared some away, particularly some of the German banks, market sources said.
One banker said a commitment of $100 million would likely result in a hold level of about $75 million, whereas many recent deals in the marketplace have let banks reduce their exposure to nearer half.
"The way the market has been over the last 18 months, syndicated deals haven't had any trouble getting two times oversubscribed," said a banker.
One banker who passed on the transaction said that some of the debt guaranteed by the loan is not counted as funded debt.
While another lender conceded that "there's nothing standard about a Republic loan," he added: "There are probably other deals out there that leave a lot more to be desired."
This lender also said the definition of funded debt was really not a problem for his institution because the loan also does not add back the depreciation of the cars.
"By not adding that, you're lopping off about $500 million of cash flow against the debt you're not including," he said, so it balances out.
A number of factors were working in Republic's favor, not the least of which was a marquee list of co-arrangers and underwriters.
Behind NationsBank Corp., which underwrote $500 million, are Chase Manhattan Corp., Citicorp, and BankAmerica Corp., which each underwrote $225 million.
"The lineup of banks at the top should bring a lot of comfort to banks that would otherwise have a problem," said a lender.
Another lender said that banks that sign onto the transaction are really buying into the management team and the company's strong cash flow.
"The company has no debt at the moment, excluding its vehicle debt, and a great base of cash flow that'll take a lot of damage before banks get worried," said the lender.
Market sources close to the transaction called the deal aggressive but said it would land sufficient commitments.
"We think this will get done without a problem," said Mr. Mauer of J.P. Morgan.