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Citigroup, the bookrunner of Clear Channel’s USD 22.1bn acquisition financing, moved to enforce market discipline last week after Credit Suisse broke ranks with its brethren arrangers and marketed the loans early, two sources familiar with the matter told Debtwire. Citi’s efforts may pay off yet as Credit Suisse subsequently put some buyers willing to purchase the debt on ice, they said.
As previously reported by Debtwire, Credit Suisse unilaterally reached out to select buyside accounts last week in an attempt to unload its exposure to the USD 19.53bn loan backing Clear Channel’s acquisition. The bank offered tailor-made OIDs on orders exceeding USD 100m.
Credit Suisse’s early marketing push sparked a messy free-for-all among arrangers Morgan Stanley, RBS and Wachovia Bank as they followed the Swiss bank’s lead and tested the waters individually, said a source close to the syndicate, the two sources familiar with the situation and three buysiders.
Credit Suisse, RBS and Wachovia are each on the hook for 14.58% of the total Clear Channel deal, or about USD 3.2bn, according to a 17 May commitment letter filed with the SEC. Citi, Morgan Stanley and a sixth arranger, Deutsche Bank, are each responsible for 18.75% of transaction, or USD 4.148bn apiece.
Citi moved to reign in the lending group Friday by calling arrangers separately to remind them that uniformity is the way to establish a market clearing price, said the first source familiar with the situation. Citi and Deutsche are said to be the only two arrangers not attempting any early selldown, said the same source and the source close to the syndicate.
That strategy seems to have given Credit Suisse pause for thought as the bank has yet to execute commitment documents from the accounts willing to ink large early deals, said the two sources familiar and the second buysider. Credit Suisse has agreed to wait for the lead arranger’s go-ahead on a proper syndication meeting before signing off on certain side deals, said the second source familiar. But as recently as yesterday Credit Suisse and Wachovia were thought to still be trying to move some Clear Channel paper, the source close said.
Proceeds from the issuance of new Clear Channel debt will help finance the broadcast media and advertising group’s USD 26.7bn sale to private equity firms Thomas H Lee Partners and Bain Capital. In addition to the loan, the underwriting banks announced plans to place USD 2.6bn of unsecured bonds.
For now the banks are telling potential buyers that they must place the debt before the week of 17 March - 20 March to unload it within the marketing period defined in Clear Channel’s merger agreement, said the first source and two of the buysiders. The banks offered at least 3x leverage via total return swaps (TRS) to accounts willing to make commitments and Credit Suisse discussed an OID in 90 context, said the first source and one of the buysiders.
Credit Suisse hopes to pry cash from loan buyers at the closing, said the source close. But if a cash sale cannot be agreed upon, the bank is offering recourse TRS with non-recourse TRS on the table as a last resort, said the same source. The bank is rumored to have told accounts that it aims to reduce its exposure to hung LBO debt by one third by the end of the month, which may be the reason why they are willing to even offer the risky sweetener of non-recourse TRS, he added.
The OID is one of the few things the rogue arrangers can specify to potential buyers. One of the drawbacks of going it alone is that the seller cannot provide key terms such as interest rate and payment schedule without an agreement by the syndicate. As a result, some investors are seeking upfront commitment fees to compensate them for the risk, said the source close, the first source familiar and the third buysider.
Clear Channel’s merger agreement did fix a Libor+ 325bps interest cap on the loan, which is split between a USD 750m ABL, a USD 2bn revolver, a USD 1.5bn term loan A, a USD 12.65bn term loan B, a USD 2bn term loan C and a USD 625m delayed draw term loan. The banks marketed the debt off USD 2.3bn of EBITDA and USD 22bn of total debt that would leave the company 8.5x levered, as reported.
Early indications are for tranche A to feature an amortization schedule, said the first source familiar and a buysider. Tranche C is being pitched as a seven-year bridge loan to asset sales, said the first source familiar.
The contemplated tranche C is attractive because a steep OID coupled with the likelihood of near-term asset sales could mean a quick return, said the first source familiar. Clear Channel has already agreed to sell 56 television stations to Providence Equity for USD 1.1bn, although that transaction is in legal limbo after arranger Wachovia refused to fund the deal under renegotiated terms.
Representatives from Credit Suisse and Deutsche Bank declined to comment. Calls to Citi, Morgan Stanley, RBS and Wachovia were not returned.
(additional reporting by Kate Laughlin)
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