Bloomberg News

NEW YORK - Smurfit-Stone Container Corp., Adelphia Communications Corp., and WinStar Communications Inc. are paying higher interest rates to get billion-dollar high-yield credit lines as the supply of such loans outstrips investors' demand for them.

The arrangers of the credit lines, which include Chase Manhattan Corp. and Bank of America Corp., have raised their average yields by a quarter to half a percentage point as investors balked at buying the loans at previously indicated lower rates.

Institutional investors, which include mutual funds and insurance companies, are demanding higher yields following a sharp drop in the value of another $2.2 billion high-yield loan for Safety-Kleen Inc. In addition, there has been a big increase in the number of new loans sought by companies this month, especially in the telecommunications sector.

"A lot of investors are full up on telecom names," said Mark Gold, who manages $3 billion of loans at Trust Company of the West. "Those arrangers that have tested the limits with pricing have found limited demand."

Bank of New York Co., Citigroup Inc., CIBC World Markets, and Credit Suisse First Boston began selling a $1 billion loan for the wireless phone operator Winstar Communications on March 7. The loan sold well at the managing agent level, with 10 banks committing $50 million each.

Institutional investors, on the hand, were unwilling to buy parts of the $400 million 7.5-year term loan carved out for them at the original spread of 3.5 percentage points more than the London interbank offered rate. That prompted the arrangers to increase the spread to 4 percentage points as well as add a fee penalty of 2% in the first year and 1% in the second year payable to investors if Winstar chooses to repay the loan early.

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