Morgan Stanley, Dean Witter & Co. is pulling a $1.7 billion loan to Sunbeam Corp. from the syndications market and releasing investors from their commitments.
The investment bank acted late Monday after Sunbeam acknowledged that its board had fired Albert J. Dunlap, Sunbeam's chief executive, in a weekend coup marshalled by investor Michael Price.
Morgan Stanley and its co-syndicators say they plan to bring the loan back to market this year but will carry it on their books in the interim.
The decision to pull the loan reflects what a tough time Morgan Stanley had selling Sunbeam to investors. It also shows how Sunbeam's penchant for surprises kept the investment bank off-balance as it tried to pitch the loan.
While lead lenders usually have full access to a company's books and management, Morgan Stanley-like most investors-had been shielded from Sunbeam's shaky finances and unstable management situation. That made it difficult for Morgan Stanley to share information with large investors and to price and structure the financing.
As details regarding Sunbeam's woes emerged, Morgan Stanley bankers were caught off guard. First, a report in Barron's said Sunbeam had "manufactured" a profitable 1997. Then, the company said to expect lower earnings in the second quarter. Finally, Mr. Dunlap was fired.
"They got slammed," said one banker. "Then they got blindsided. It's not so much Morgan but Sunbeam. Even if you think it's a possibility, you can't ask a CEO to his face if he's going to get fired. That just doesn't happen."
R. Bram Smith, head of syndicated lending at Morgan Stanley, conceded those factors precipitated the investment bank's decision, adding that those events "came as a surprise."
"But I would say the flow of information was typical" of today's lender- borrower relationship, he said. "A better word might be disappointment."
Mr. Smith stressed that Morgan Stanley, as well as co-syndicators BankAmerica Corp. and First Union Corp., were not giving up on the deal. Until new commitments can be found, Morgan Stanley is committing to $680 million of the loan. The co-syndicators have committed to $510 million each.
"They have our money, so we're going to have to sell it down eventually," Mr. Smith said.
Scott Page, co-manager of $4.2 billion in corporate-loan funds for the Eaton Vance family of mutual funds in Boston, said Morgan Stanley made a smart move in delaying syndication.
"They're going to have to sort out their issues," Mr. Page said. "I don't know when they'll come back, but it probably won't be until all of the management issues have been sorted out."
Sunbeam is using the loan to pay for its recent buyouts of Coleman Co., Signature Brands USA, and First Alert Inc. With Mr. Dunlap aside, Sunbeam, based in Delray, Fla., is reorganizing its management under its new CEO, Jerry W. Levin, the former chief executive of Revlon Inc.
Mr. Smith said his lending team will have to meet with Sunbeam's new management to develop a strategy. Pending that meeting, a new run at the market is likely later this year, he said.
The coming syndication is likely to be tough. This spring, Morgan Stanley had been quietly shopping the Sunbeam loan to investors. The reception had not been good, prompting the investment bank to boost yields on the two-part deal.
Then came a heated bank meeting in New York on June 9. There, Mr. Dunlap sharply rebuked tough questioning from potential investors in the loan. Ironically, it was the same day Dunlap faced similarly pointed questions from the Sunbeam board.
For Morgan Stanley, the tide looked to be shifting following Mr. Dunlap's performance. An unnamed investor committed to $500 million, or nearly one-third of the loan, by June 11.
The rest of the lending community, however, seemed unmoved. Sources at the meeting said many were not satisfied with Mr. Dunlap's responses to questions, many of which were centered around press reports critical of Sunbeam's finances.
Others were put off by Mr. Dunlap's swagger. Just before the June 9 meeting, the firebrand CEO handed out signed copies of his book, "Mean Business," a move at least one banker said he found "tacky."
When news of Mr. Dunlap's firing appeared Monday, Morgan Stanley clearly was caught off guard. Loan Pricing Corp. announced it was syndicating the loan via the Internet at the same time Morgan Stanley was pulling the loan from the market.
Once the confusion clears up, the Morgan Stanley-led group will have to restore investor confidence in Sunbeam before it can return the loan to the market, bankers say.
Part of that responsibility will go to Mr. Levin, said R. Scott Graham, an analyst with CIBC Oppenheimer. Levin has already promised to set "realistic" goals.
"I believe long-term confidence has been restored," Mr. Graham said. "In the short term, people are concerned about earnings and in some cases the company's liquidity. I think that's unwarranted."
For Morgan Stanley, one banker suggests bringing in independent auditors to examine Sunbeam's books because "Sunbeam has a real credibility gap .... In order to be comfortable, people are going to want and need that information."
