An eleventh-hour increase in fees failed to turn around the faltering syndication of an $875 million refinancing for Dr Pepper/Seven-Up Cos., led by Bankers Trust Co.
As a result, the underwriting banks are holding far more of the credit on their books than they want.
Dr Pepper has already obtained the funds, and is unaffected by the outcome of the syndication.
Syndicate to Stay Open
The underwriters' deadline - which had already been extended once - passed again last Thursday without enough commitments. The lenders now will keep the syndicate open for an undetermined period, possibly extending into next year.
By the end of last week, they had found buyers for only about $380 million of the credit.
That left Bankers Trust, Chase Manhattan Bank, and NationsBank each with around $100 million of exposure.
Three other banks that took lesser, but still significant underwriting roles as co-agents are left holding about $60 million apiece.
They are Barclays Bank, Canadian Imperial Bank of Commerce, and First National Bank of Chicago.
More Exposure than Desired
Those amounts far exceed the $25 million that syndicators typically want to keep on their books -- the so-called hold level.
"Any time you get stuck with a multiple of your hold level, it's a fiasco," said an official at one of the banks in the primary syndicate.
"The market rose up and smote the underwriters," an official with one of the six lead banks acknowledged.
The main problem was one of pricing, rather than the underlying credit.
As reported, the underwriters had raised just $250 million in commitments by the initial deadline of Oct. 21.
In an effort to jump-start the deal, commitment fees for prospective members of the primary syndicate were raised by as much as 75 basis points, and the deadline was extended by eight days.
Timing of Fee Increase
Among the underwriters, Barclays and CIBC were said to have wanted to raise the fees sooner, while other members of the underwriting group held out for a time.
According to one member of the underwriting group, a number of prospective syndicate members are actively studying the credit, and could commit within a matter of weeks.
Some banks didn't focus on the deal at first, he said, because they were dissatisfied with the pricing. When the fees were sweetened, they began looking at it with new interest.
At the same time, though, since most banks have already reached their loan-production budgets for the year, there's no compelling reason for banks to commit now if they haven't already gone so.
Moreover, some banks are anticipating that they will get a better deal on the credit in the secondary market.