Strong technical market leads to pricing anomalies on Roundy's, Ventas deals

By Sara Rosenberg

New York, May 7 - The technical strength of the bank loan market is affecting interest rates on new issues in an extraordinary way. Due to the high level of institutional demand and the lack of supply in the marketplace, syndicates, in rare occasions, have priced institutional tranches at cheaper levels than pro rata portions. So far there have only been two instances in which this phenomenon has been reported - Roundy's Supermarket and Ventas Inc.

Roundy's recently announced an anticipated price of Libor plus 300 basis points on its $250 million seven-year term B loan, according to market sources. Meanwhile, its new $90 million five-year revolver was priced with an interest rate of Libor plus 325 basis points, 25 basis points higher than the term B.

"This is the first time this ever happened," a researcher told Prospect News while talking about the term B pricing tighter than the revolver. "In this market it's harder to get banks than institutions."

The initial commitment fee on the revolver is 25 basis points. Interest rates are established through a pricing grid based on ratings. Currently, it is anticipated that the deal will be rated BB-/Ba3, according to a market professional. If these ratings are not obtained, the interest rates may be changed. Upfront fees for the pro rata portion are 75 basis points for a commitment of $20 million, 62½ basis points for a commitment of $15 million and 50 basis points for a commitment of $10 million, the professional added.

Roundy's held a first-round bank meeting for existing lenders on April 22. A second-round bank meeting will probably take place in mid-May, a syndicate source previously told Prospect News. Market talk, however, is that the Pewaukee, Wis. food wholesaler and retailer's bank meeting will be held Wednesday. The credit facility is expected to close by the end of May or early June, according to the syndicate, depending on whether proxy issues in regards to the leveraged buyout by Willis Stein & Partners work out. Bear Stearns and CIBC are co-leads for the offering.

There is some disagreement as to whether Roundy's is the first deal to exhibit this rarity in pricing. According to another market professional, Ventas was the first deal in which pro rata paper had a higher interest rate than institutional paper.

Ventas held a bank meeting the week of April 22 for its new $350 million credit facility. The loan consists of a $290 million three-year revolver with an interest rate of Libor plus 275 basis points and a $60 million term B with an interest rate of Libor plus 250 basis points, 25 basis points tighter than the revolver.

"Technically, Ventas was the first time," the professional said. "But, because of its size it was not perceived as a deal with critical mass."

Security for Louisville, Ky. real estate investment trust's loan is a first mortgage on certain company assets. Proceeds from the facility will be used to refinance existing debt. The loan is anticipated to close around May 17. Bank of America, UBS Warburg and Merrill Lynch are the lead banks on the deal.

In other news, Calpine Corp. held a bank meeting for retail investors Tuesday regarding its $600 million two-year term B (Ba3/BB+) that was priced with an interest rate of Libor plus 375 basis points. Salomon Smith Barney, Deutsche and Credit Suisse First Boston are the lead banks on the deal. The San Jose, Calif. power company's term B is expected to close by the end of May.

Proceeds will be used to finance capital expenditures and for corporate purposes. The loan is secured by natural gas properties, the Saltend power plant in the United Kingdom, equity investments in nine U.S. power plants and mortgages on gas properties.

Expected activity in the primary this week includes Seminis Inc.'s bank meeting regarding its new $190 million credit facility. Bank of Montreal, UBS Warburg and RaboBank are the lead banks on the deal.

The loan is anticipated to consist of a $50 million five-year revolver with an interest rate of Libor plus 325 basis points and a $140 million five-year term loan B with an interest rate of Libor plus 350 basis points. The Oxnard, Calif. developer, producer and marketer of vegetable and fruit seeds will use proceeds to refinance existing debt.

Also coming up are deals from Boyd Gaming and The Borgata on Thursday. Boyd's meeting is for a $500 million loan (Ba1/BB) consisting of a $400 million five-year revolver at Libor plus 250 basis points and a $100 million five-year term B at Libor plus 250 basis points. The Borgata's meeting is for a $187.5 million term B (B+) at Libor plus 400 basis points. CIBC is the lead bank on both gaming deals.

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