Oct 4 Investor resistance to Rue21's takeover
deal forced banks to slash the discount, which in all likelihood
will lead to a steep loss to banks on a $544 million loan to the
troubled retailer, sources told Thomson Reuters LPC.
The company finalized terms on the seven-year term loan B at
LIB+462.5 basis points with a 1 percent Libor floor and an
original issue discount of 80 to 82 cents on the dollar, sharply
below where the initial 99 discount.
At the current discount, proceeds from the financing will be
reduced by between $98 million and $109 million. Typically, at
these low levels banks take significant losses.
"This is probably one of the biggest losses to banks in
recent years," one loan investor said.
Lenders have been asked for commitments to the loan by 5 pm
ET on Friday.
Lead banks Bank of America Merrill Lynch, JP Morgan and
Goldman Sachs struggled to distribute among investors a $944
million financing backing the $1.1 billion buyout of Rue21 by
BAML, JP Morgan and Goldman Sachs declined to comment on
Investor demand for the original deal was muted after the
clothing retailer revealed an 87 percent decline in earnings
from May, when Apax Partners announced its plans to buy the
company, until the shareholder vote in mid-September, which
approved the deal. The buyout is expected to close by October
The loan package, which failed to draw investor demand by
the original deadline of August 16, was circled among investors
at reworked terms in one-to-one meetings in late September.
The overall financing consists of a $150 million asset-based
lending revolver, the $544 million, seven-year term loan, which
was increased from $533 million during syndication, and a $250
million bridge loan to bonds.
The three lead banks had been expected to fund the full term
loan if failing to meet demand for the financing before the
anticipated closing of the buyout on October 10. However, as
market sentiment improved this week the lead banks re-launched
the deal to a wider set of investors at the aforementioned
terms, according to sources.
The banks will take a loss regardless. BAML and JP Morgan
have committed to provide 45 percent of the financing each.
Goldman Sachs committed to provide the remaining 10 percent,
according to one source.
The $250 million bridge-to-bonds accompanying the financing
will be held by the three banks and is expected to be
distributed at a later date. The revolver, which will remain
mainly undrawn, is also anticipated to be held by the banks.
Corporate family ratings are Caa1/B- and facility ratings
On May 23, Rue21 announced that Apax Partners was acquiring
all outstanding shares of Rue21 for $42 in cash, or an
approximate 23 percent premium to Rue21's May 22 closing price.
On September 19, Rue21 said in a release that based on a
preliminary vote tally from the special meeting of stockholders,
Rue21 stockholders have approved the previously announced merger
Warrendale, Pennsylvania-headquartered Rue21 offers
value-priced clothing to young men and women through 959 stores
across 47 states.