NEW YORK, Oct 21 (IFR) - Bank of America Merrill, Goldman Sachs and JP Morgan have approached investors to sell a US$250 million bridge loan that part-financed the buyout of teen clothing retailer Rue21 by Apax Partners, market sources said on Monday.
Two market sources not directly involved in the deal said the underwriters were trying to gauge where the clearing level would be for the loan, a bridge to a high-yield bond, after the banks suffered a US$100 million loss on the term loan.
The underwriters were forced to price the US$538.5 million term loan at a steep discount at 81.5 earlier this month. Although the loans have since risen to around 85, the bonds would have to offer some discount to that to account for the subordination of the issue, one of the sources said.
One investor, who decided not to buy the bridge, said investors were pushing for a discount in the mid-70s area in terms of pricing, which would equate to a yield of around 14-15%. The coupon on the senior unsecured notes, maturing in 2021 and rated Caa3 by Moody's, is expected to be 9%, the investor said.
It is not clear whether the bridge loan has been completely sold, all of the sources said.
Bank of America Merrill Lynch, JP Morgan and Goldman Sachs were either not immediately available, or declined to comment.
Moody's estimates pro forma debt/EBITDA at around 8.0 times for the twelve months ended August 3 2013.
"Given the discretionary nature of Rue 21's product, recent fashion missteps and pressures facing the company's lower-income target customer, leverage is likely to further increase and remain elevated over the near-to-intermediate term," the rating agency said.