Investors elbowing into bankruptcy exit deals

NEW YORK (Reuters) - Access to financing for bankrupt companies has improved dramatically since the market for debtor-in-possession loans and exit facilities seized up in early 2009, restructuring experts told the Reuters Restructuring Summit on Wednesday.

DIP loans are used to finance a company's operations while in Chapter 11 bankruptcy protection, while exit loans are used to facilitate a debtor's emergence from restructuring.

"There have been very significant changes on both the front and back end of bankruptcy financing," said Steven Smith, global head of restructuring at UBS AG (UBS.N), referring to DIP and exit loans.

Pricing and the availability of funds for both DIP loans and exit loans have returned to more normal levels, he said.

Though pricing varies depending on individual companies, the premium lenders demand in order to lend to bankrupt companies has come down by half.

Pricing on DIP loans falls in the range of 450 to 550 basis points over Libor as compared to 1200 to 1300 basis points over Libor as seen at the height of the crisis, Smith said.

Current pricing marks a turnaround from the days when funding was scarce. Previously, the market for DIP loans demanded extraordinary returns of 16 percent or 17 percent, a function of how little money was available to lend, he said.

Pricing on exit facilities is starting to come in line with traditional loans for comparable companies in the same sector, he said, though it does depend on leverage levels.

With banks willing to lend, investor demand has also increased for exit deals. In January, Spansion Inc (CODE.N) was able to refinance more than $400 million in debt and the exit financing was oversubscribed with investors fighting to buy the debt upon exit from bankruptcy, said Luc Despins, partner and chair of global restructuring at law firm Paul Hastings.

The $450 million term loan was priced at 550 basis points over Libor, according to Thomson Reuters LPC data.

More recently, AbitibiBowater Inc's ABWTQ.PK $600 million asset-based exit loan was also oversubscribed.

The deal, which is being syndicated, will pay an interest rate starting at 300 basis points over Libor based on pricing grid, according to data from Thomson Reuters LPC.

Investors are looking to put money to work and as a result are elbowing to get into exit financings, Smith said.

(Reporting by Leela Parker. Editing by Robert MacMillan)