syndication market last week. BankAmerica Corp., Bank of New York Co., First Chicago Corp., and Goldman, Sachs & Co. are leading the loan, which will enable TJX Co. to acquire the Marshalls Inc. retail chain from Melville Corp. The challenge for the four underwriters, who hope sell off portions of the loan to banks and other investors, is to distinguish TJ Maxx from other retailers - such as Caldor Inc., Bradlees, K mart, Lillian Vernon, Edison Brothers, and Merry Go Round - that have run into financial trouble recently. A bank meeting last week was well attended, but one syndicator said that the TJ Maxx loan is "a pretty challenging deal, given what's going on with retailer after retailer." The pricing on the loan indicates a belief that TJX will remain investment grade after the merger - an assumption that doesn't carry much weight with observers who point out that Caldor's was investment grade a year before it filed for bankruptcy protection. Caldor's filed for protection under Chapter 11 of the federal Bankruptcy Code in September, listing about half a billion dollars in bank debt. Bankers familiar with the situation said Caldor's is a viable company, but its vendors and factors lost confidence because of uncertainties in the retail sector and bankruptcy of another regional retailing chain, Bradlees Inc. "There's a broad view that retailing is a broken industry," said Ted Stenger, a retail specialist with the turnaround firm Jay Alix & Associates. Mr. Stenger and other workout experts said the problems stem from the advent of mass retailers such as WalMart, and a poor job on the part of the middle-market players in targeting customers. "Most of these retailers have no unique selling proposition," said Gary Brooks, president of Allomet Partners Ltd., who estimated retailers account for 25% of his firm's turnaround practice. Problems in retailing tend to come to a head around this time of year, when stores stock their shelves for the Christmas season. And pessimism among the suppliers and factoring companies that finance the suppliers is especially strong this year on the heals of poor back-to-school sales. The workout experts said banks, as secured lenders, are in a better position than other creditors in a bankruptcy. Indeed, banks have found some new opportunities in the tough times for retailers. Chemical Banking Corp. provided debtor-in-possession loans of $250 million apiece in the Caldor and Bradlees proceedings, taking advantage of a provision of bankruptcy law that allows the bankrupt company to get working capital in the form of a loan that has priority over other claims. An out of court restructuring can provide some opportunities as well. BankAmerica's asset backed lending unit last month provided a $75 million letter of credit that will enable Edison Brothers Stores Inc. to obtain merchandise for the Christmas season. In announcing the deal, the St. Louis-based retailer said it paid a forbearance fee to its banks, which agreed to standstill agreements through February on $362 million of loans. Defenders of the TJ Maxx deal, however, envision clear sailing for their borrower. They said that the new company will combine the No. 1 and No. 2 businesses in the designer discount sector of the industry, creating a Goliath in a fairly fragmented business. Additionally, as part of the merger, TJX has indicated a willingness to eliminate a number of its stores and reduce its expenses, said some bankers. The deal has 75-basis-point up-front fees, which some bankers said was about 25 to 50 basis points lower than they might have expected given the retail credit context. The deal is split between a $500 million, three-year revolver and a $375 million, five-year term loan. The price of the deal starts at the London interbank offered rate plus 50 basis points, and has a 25 basis point facility fee. Even bankers who said the deal should be completely subscribed in the market were somewhat cautious. "The deal should do O.K.," said Jamie Lewis, head of loan syndications at the Bank of Boston, "but people are afraid of their shadow in that market right now."
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