First Data restructuring talks lead to higher spreads, still covenant-light; LCDX, cash stronger

By Sara Rosenberg

New York, Sept. 6 - First Data Corp.'s multi-billion credit facility is expected to come to market with higher pricing than originally outlined, but the covenant-light structure will remain in place, as a result of the negotiations that have been taking place between the bankers and the buyer of the company.

Over in the secondary, LCDX and the cash market both felt a little better on Thursday, and there was even a slight increase in activity.

First Data's $16 billion credit facility is anticipated to carry pricing that is 25 basis points higher than what was previously agreed upon due to recent talks between the bankers on the deal and Kohlberg Kravis Roberts & Co., the buyer, according to market sources.

However, the covenant-light structure of the transaction will not be changed, sources said.

"This is good news overall for the primary side. These deals will get done. Sponsors are not completely holding a hard line," one source remarked.

Since late August, when news of "big meetings" between the parties involved in the First Data credit facility hit the market, sources have been speculating that the deal could see the elimination of its covenant-light structure, higher pricing from the talk that was seen during the senior managing agents round and the addition of hefty original issue discounts.

But, the non-flexibility with covenants was already predicted by one source, who told Prospect News last week, "Sponsors tend to fight over adding covenants. I'd expect something more like a large OID on this thing. Something Chrysler like." The Chrysler Financial deal done this summer saw its first- and second-lien term loans sold at a discount of 95.

With the emergence of this latest restructuring news, sources are now hearing that the retail launch for the deal could take place next week, assuming that the negotiations wrap up. A firm date for the launch, though, has yet to be announced.

It had been previously rumored that the deal could launch to retail investors as early as this week, but many called that timeline too aggressive, which indeed proved to be the case.

First Data's credit facility consists of a $2 billion six-year covenant-light revolver and a $14 billion covenant-light seven-year term loan B.

When the deal was launched to senior managing agent banks in late May, price talk on the two tranches was set at Libor plus 225 bps to 250 bps.

"Pricing is tied to ratings in the financing commitment but ratings haven't come out yet, so don't know where pricing will be," a source said. "The guess is Libor plus 275 to 300 [bps]. OID expected likely but that's to be determined."

First Data's credit facility has been a main focus for market players now that the launch is nearing because it's viewed to be the first real test of investor appetite for leveraged buyout paper since the primary crumbled during the summer.

And, according to rumors, it may be a positive event as talk is that "a big part is already done," the source continued.

"Supposedly hedge funds have committed to a big chunk of this," the source added.

Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Lehman Brothers and Merrill Lynch are the lead banks on the deal.

Under the buyout agreement, Kohlberg Kravis Roberts is purchasing the company for $34 in cash per share. The total value of the transaction is about $29 billion.

All required domestic and international regulatory approvals have already been obtained for the buyout.

Recently, the company said it is anticipating that the transaction will close by the end of September.

First Data is a Greenwood Village, Colo., provider of electronic commerce and payment services for businesses.

LCDX, cash trade up

Moving to trading news, LCDX and the cash market were both a touch higher during Thursday's market hours with a little more volume seen, according to traders.

The index went out at 95.25 bid, 95.30 offered, up from 95.05 bid, 95.15 offered, traders said.

As for cash, it felt stronger by about an eighth of a point to a quarter of a point, traders continued.

"In cash, volume was higher than yesterday but it's still not up to the norm," one trader added.

Stocks were also better on Thursday, with Nasdaq up 8.37 points, or 0.32%, Dow Jones Industrial Average up 57.88 points, or 0.44%, S&P 500 up 6.26 points, or 0.43%, and NYSE up 54.38 points, or 0.57%.

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