Woolworth Corp., still feeling aftershocks of an accounting scandal, has had to refinance its $1.5 billion bank loan at higher cost.
Fees were increased across the board for the recently downgraded five- and-dime retailer, reflecting larger underwriting commitments that were needed to get the deal done, bankers said last week.
The loan replaces a facility led last year by Morgan Guaranty, Natwest PLC, and Citicorp.
Natwest was expected to serve as the documentation agent in the new loan, but has dropped out. Citicorp is reportedly not planning to participate at all.
Morgan will serve as the co-syndication agent with Chemical Banking Corp. Bank of New York will act as administrative agent, Bank of Nova Scotia as documentation agent, and NationsBank as letter of credit issuing agent.
Morgan is the lead underwriter among the agent banks, with a $500 commitment. The other banks have underwritten between $200 million and $300 million.
Up-front fees for that group range from 40 to 50 basis points, and allocation fees range from 100 to 115 basis points.
Market sources suggest that the high fees reflect a combination of concern over the company's earnings and the problems in the early stages of syndication.
Indeed, Standard & Poor's Corp. and Moody's Investors Service Inc. both downgraded the company within the past week. The rating agencies anticipated that an earnings turnaround would take some time.
The company is still working out an accounting scandal that resulted in the dismissal of the New York-based company's chief executive officer.
The scandal broke last year while the bank group was structuring the company's first syndicated loan.
Market sources expressed surprise that neither Natwest PLC nor Citicorp - managing agents in the earlier facility - were holding any titles on the new facility.
The loan is only the second syndicated credit for the 116-year-old owner of Foot Locker, Champs Sports, and Northern Reflections.
For years Woolworth relied on several bilateral lines of credit. It was following the broader corporate market trend toward syndicated loans when it formed last year's bank group.
When accounting problems surfaced, the company was forced to rework the tenure of the deal to a 364-day credit.
Market sources said that the terms of the current facility reflect those that had been anticipated last year.
The current deal is divided into a $1 billion three-year revolver and a $500 million 364-day revolver.
The undrawn cost on the 364-day piece is 25 basis points, while the undrawn cost on the three-year revolver is 31.25 basis points.
The all-in drawn cost, including the facility fee, ranges from the London interbank offered rate plus 100 basis points to 112.5 basis points, depending on utilization.