J.P. Morgan & Co. has restructured a problematic $2.25 billion loan for Meditrust Corp. in an effort to sew up the deal by next week.
Facing slow demand for a $1.5 billion revolving loan, Morgan has sliced $500 million from that portion and made it a three-year term loan available to institutional investors, a source said. The interest Meditrust must pay to investors remains at 1.75 percentage point over the London interbank offered rate but drops to 1.378 point once the other loans have been paid.
Investors, mostly from insurance and mutual fund companies, have lined up for an original part of the Morgan-led financing, a $750 million, one- year term loan that can be extended to 18 months. But commitments for the larger revolver remained scarce as the deadline loomed.
In creating the $500 million credit, a banker said, Morgan expects investors to be more ready buyers because Meditrust is required to use and repay a term loan. A revolver generally need not be drawn on.
By recutting the financing, Morgan is hoping to avoid the fate that befell Salomon Smith Barney when it tried to syndicate $2.25 billion for Meditrust with structure and pricing that market players described as "off the mark." Meditrust eventually fired Salomon after the investment bank wouldn't commit itself to a sizable unsold portion. Morgan has boosted yields offered to investors, but skepticism remains.
"A lot of people feel the deal doesn't have much more to offer than the Salomon version," said a banker close to the deal. As a result, response has been lukewarm.
Still, sources said, Morgan bankers are confident the deal will be completed. NationsBank Corp. has committed $150 million to the revolver. Bankers Trust Corp., BankBoston Corp., and Fleet Financial Group Inc. are onboard as co-managers and have committed themselves, with Morgan, to syndicate $563 million blocks each.
Morgan also has compiled a four-page report that outlines the distinctions between its financing package and Salomon's. Meditrust officials also pitched in with a two-hour explanation of the REIT's diversification strategy at a bank meeting June 24 in New York.
Meditrust, an $8 billion real estate investment trust based in Needham Heights, Mass., specializes in health care; it plans to use the loan to pay for its buyout of LaQuinta Inns, a hotel chain, and Cobblestone Holdings, a golf course holding company.
Each part of the new loan package - the $1 billion revolver; a $750 million one-year, extendable term loan; and the $500 million three-year term loan - is priced at 1.75 percentage point above Libor.