Dispelling doubts about bank's willingness to finance big-ticket buyouts, the syndication of a $650 million loan for Kohlberg Kravis Roberts & Co. looks like a rousing success.
The response indicates a return to "a more normalized financing market" for buyouts, said one participating banker.
The loan, led by Chase Manhattan Bank, will help finance KKR's planned purchase of American Re-Insurance Co., a unit of Aetna Life & Casualty Co., for $1.4 billion.
Big for 1992
Though it pales in comparison to the megadeals of the 1980s, the American Re buyout is one of this year's largest takeovers. The related bank loan is the biggest leveraged buyout credit to hit the market in well over a year.
Fully underwritten in May by Chase and co-agents Continental Bank and Westpac Banking Corp., the credit so far has attracted five more banks, each committing $75 million as a lead manager.
The result of this first stage of the syndication process are impressive because only six banks were asked to participate as lead managers - one level below co-agent.
The five who signed up are Bank of Boston, Bank of New York, Canadian Imperial Bank of Commerce, Credit Lyonnais, and Midland Bank.
Only Barclays Bank declined - for reasons that apparently had nothing to do with the deal at hand. Bankers in Barclays' New York office wanted to participate, banking sources said, but their recommendation was rejected by Barclays officials in London.
Credit officers in Barclays' head office were said to feel that the bank already has enough exposure to British insurance credits, including troubled Lloyds of London.
Each of the lead managers will get a flat fee of $750,000, or 1% of their initial commitment, plus 1.75% of the final amount they are allocated when the syndication is completed.
The $650 million credit consists of two tranches: a $500 million term loan carrying a borrowing rate of 300 basis points over the London interbank offered rate and a $150 million "bullet" loan, priced at Libor plus 350 basis points.
About 80 institutions including loan funds and other nonbank investors, have been invited to participate in the general syndicate. A meeting for this group is scheduled Thursday in New York.
A Strong Start
Though it's difficult to predict how the credit will fare in the broader market, bankers associated with the deal said the momentum generated in the syndication's first phase gives a strong push.
It also helps that KKR is the sponsor.
At the same time, though, a relatively small number of banks are experienced insurance lenders, particularly when it comes to leveraged insurance deals.
The American Re buyout would be the largest ever in the insurance industry.