by Michelle Sierra and Joy Ferguson
NEW YORK, May 20 (IFR) - Chrysler Group LLC kept US market participants tied to their seats this week as it tweaked the terms and structure of its refinancing package to keep up with demand.
Chrysler executives, led by Chief Executive Sergio Marchionne, had been meeting with potential investors since early May to market a $3.5bn six-year term loan and $2.5bn of second-lien senior secured bonds, with the target of completing the loan transaction by May 18.
But they had to rework their strategy as the appetite on the term loan portion of the transaction was sluggish while the bond issue was rallying.
On May 17, the company said it reduced the loan by $1bn from $3.5bn and upsized the $2.5bn second-lien note by the same amount to $3.5bn.
Price talk on the term loan was also revised to L+475bp, with a 1.25-1.5% Libor floor and a 99 OID. Arrangers of the loan also added some bond like features such as a stronger call protection making it non-callable for the first year and then at 102 and 101 in the years following.
The term loan launched at a bank meeting on May 4 together with a $1.5bn revolver. The loan had originally launched at
400
425 basis points over Libor with a 1.25% Libor floor, along with a discount of 99 to 99.5. It initially included 101 soft call protection in year one, a common feature of recent leveraged loan transactions. The revolver, meanwhile, launched at 400-425 basis points over Libor.
The bonds' road show started on May 9.
GATHERING MOMENTUM
Interest in the loan at the new terms was such that by May 19 the company was able to resize the facility to $3bn from $2.5bn amid an oversubscription. The terms were left unchanged.
The second-lien notes were also reduced to $3.2bn and the five-year revolver reduced to $1.3bn.
The yield mismatch between the term loan and bond was cited as the main reason why lenders were initially more attracted to the bond portion of the transaction. The longer call protection on the bonds was also considered a more attractive feature.
Once the yield difference was reduced and a stronger call protection was added, the loan deal became more appealing to potential lenders, sources following the transaction said.
During syndication, pricing on the revolver also increased to be in line with that of the term loan. Pricing is now L+475bp. No Libor floor or OID was added to the revolver.
Morgan Stanley is lead arranger of the term loan. Other top lenders on the loan are Bank of America Merrill Lynch, Citigroup and Goldman Sachs.
Lenders in the revolver include lead arranger Citigroup, together with Morgan Stanley, Bank of America and Goldman Sachs. Lenders in the revolver also include Barclays Capital, Deutsche Bank, UBS, RBC, IntesalSanPaolo, RBS and Credit Suisse, each of which is also a co-manager of the bond sale.
Meanwhile, any concerns that the large size of the bond would be an obstacle were unfounded, with investors hearing an order book of between US$6bn-US$8bn on the morning ahead of pricing.
Chrysler's deal is the biggest offering to come to market since Frontier Communications' priced its US$3.2bn deal in March 2010.
The $3.2bn two part senior secured second lien bond issue, priced late yesterday, was split into a US$1.5bn in eight-year non-call four tranche and a US$1.7bn 10-year non-call five tranche. The eight-year piece priced at 8% at par, on the wide end of talk, while the 10-year priced 25bp wide of that, as expected.
'This is a benchmark name coming at 8% area that will be liquid,' said one investor ahead of pricing. 'In this market, it will do well.' This morning, Chrysler's new eight-year is trading at 100.25-100.75 with the 10-year seen at
100.875
101.125.
Continued strong appetite for high-yield debt aided in getting the deal done, despite a recent flood of issuance. High yield volume the month to date stands at $31.2bn, which is quickly closing in on the monthly record of $34.4bn set in March 2010, according to Thomson Reuters data.
Including Chrysler, 17 US issuers tapped the high-yield market this week as companies continue to take advantage of record-low yields.
Bank of America Merrill Lynch and Goldman Sachs were joint physical books, with Citigroup and Morgan Stanley acting as joint books.
The term loan and bond are part of a $6.2bn refinancing that Chrysler will use to repay $7bn in government loans stemming from the company's 2009 bailout. The revolver will be used for general corporate purposes and will not repay debt.
Chrysler will funnel an extra $1.27bn in cash from Fiat to pay down the remaining debt. Fiat, which currently owns 30 percent of Chrysler, has said it plans to purchase an additional 16 percent stake in the U.S. automaker for $1.27bn.
(Reporting by Michelle Sierra and Joy Ferguson)
((michelle.sierra@thomsonreuters.com; Tel: 1-646-223-8592) For other related fixed-income quotations, stories and guides to Reuters pages, please double click on the symbol: U.S. corporate bond price quotations... U.S. credit default swap column........ U.S. credit default swap news.......... European corporate bond market report.. European corporate bond market report.. Credit default swap guide.............. Fixed income guide..................... U.S. swap spreads report............... U.S. Treasury market report............ U.S. Treasury outlook.................. U.S. municipal bond market report...... Keywords: MARKETS CREDIT/ (Reuters messaging; michelle.sierra.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, May 20 (IFR) - Chrysler Group LLC kept US market participants tied to their seats this week as it tweaked the terms and structure of its refinancing package to keep up with demand.
Chrysler executives, led by Chief Executive Sergio Marchionne, had been meeting with potential investors since early May to market a $3.5bn six-year term loan and $2.5bn of second-lien senior secured bonds, with the target of completing the loan transaction by May 18.
But they had to rework their strategy as the appetite on the term loan portion of the transaction was sluggish while the bond issue was rallying.
On May 17, the company said it reduced the loan by $1bn from $3.5bn and upsized the $2.5bn second-lien note by the same amount to $3.5bn.
Price talk on the term loan was also revised to L+475bp, with a 1.25-1.5% Libor floor and a 99 OID. Arrangers of the loan also added some bond like features such as a stronger call protection making it non-callable for the first year and then at 102 and 101 in the years following.
The term loan launched at a bank meeting on May 4 together with a $1.5bn revolver. The loan had originally launched at
400
425 basis points over Libor with a 1.25% Libor floor, along with a discount of 99 to 99.5. It initially included 101 soft call protection in year one, a common feature of recent leveraged loan transactions. The revolver, meanwhile, launched at 400-425 basis points over Libor.
The bonds' road show started on May 9.
GATHERING MOMENTUM
Interest in the loan at the new terms was such that by May 19 the company was able to resize the facility to $3bn from $2.5bn amid an oversubscription. The terms were left unchanged.
The second-lien notes were also reduced to $3.2bn and the five-year revolver reduced to $1.3bn.
The yield mismatch between the term loan and bond was cited as the main reason why lenders were initially more attracted to the bond portion of the transaction. The longer call protection on the bonds was also considered a more attractive feature.
Once the yield difference was reduced and a stronger call protection was added, the loan deal became more appealing to potential lenders, sources following the transaction said.
During syndication, pricing on the revolver also increased to be in line with that of the term loan. Pricing is now L+475bp. No Libor floor or OID was added to the revolver.
Morgan Stanley is lead arranger of the term loan. Other top lenders on the loan are Bank of America Merrill Lynch, Citigroup and Goldman Sachs.
Lenders in the revolver include lead arranger Citigroup, together with Morgan Stanley, Bank of America and Goldman Sachs. Lenders in the revolver also include Barclays Capital, Deutsche Bank, UBS, RBC, IntesalSanPaolo, RBS and Credit Suisse, each of which is also a co-manager of the bond sale.
Meanwhile, any concerns that the large size of the bond would be an obstacle were unfounded, with investors hearing an order book of between US$6bn-US$8bn on the morning ahead of pricing.
Chrysler's deal is the biggest offering to come to market since Frontier Communications' priced its US$3.2bn deal in March 2010.
The $3.2bn two part senior secured second lien bond issue, priced late yesterday, was split into a US$1.5bn in eight-year non-call four tranche and a US$1.7bn 10-year non-call five tranche. The eight-year piece priced at 8% at par, on the wide end of talk, while the 10-year priced 25bp wide of that, as expected.
'This is a benchmark name coming at 8% area that will be liquid,' said one investor ahead of pricing. 'In this market, it will do well.' This morning, Chrysler's new eight-year is trading at 100.25-100.75 with the 10-year seen at
100.875
101.125.
Continued strong appetite for high-yield debt aided in getting the deal done, despite a recent flood of issuance. High yield volume the month to date stands at $31.2bn, which is quickly closing in on the monthly record of $34.4bn set in March 2010, according to Thomson Reuters data.
Including Chrysler, 17 US issuers tapped the high-yield market this week as companies continue to take advantage of record-low yields.
Bank of America Merrill Lynch and Goldman Sachs were joint physical books, with Citigroup and Morgan Stanley acting as joint books.
The term loan and bond are part of a $6.2bn refinancing that Chrysler will use to repay $7bn in government loans stemming from the company's 2009 bailout. The revolver will be used for general corporate purposes and will not repay debt.
Chrysler will funnel an extra $1.27bn in cash from Fiat to pay down the remaining debt. Fiat, which currently owns 30 percent of Chrysler, has said it plans to purchase an additional 16 percent stake in the U.S. automaker for $1.27bn.
(Reporting by Michelle Sierra and Joy Ferguson)
((michelle.sierra@thomsonreuters.com; Tel: 1-646-223-8592) For other related fixed-income quotations, stories and guides to Reuters pages, please double click on the symbol: U.S. corporate bond price quotations... U.S. credit default swap column........ U.S. credit default swap news.......... European corporate bond market report.. European corporate bond market report.. Credit default swap guide.............. Fixed income guide..................... U.S. swap spreads report............... U.S. Treasury market report............ U.S. Treasury outlook.................. U.S. municipal bond market report...... Keywords: MARKETS CREDIT/ (Reuters messaging; michelle.sierra.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.