July 1 (Bloomberg) -- Lawson Software Inc. was unable to sell more than a third of a $1.04 billion loan backing its buyout by Golden Gate Capital Corp. as investors grew more risk adverse amid concerns the economic recovery is slowing.
A bank group led by Credit Suisse AG will hold $440 million, or 42 percent, of a $1.04 billion loan financing Lawson’s takeover, after selling $600 million to investors earlier this week. Two other loans deals totaling $700 million also were pulled from the market, according to data compiled by Bloomberg.
Concerns about a slowing U.S. economy and the debt crisis in Europe made it more difficult to get deals done even as loan prices rebounded from an almost six-month low. The yield to investors was increased on about $4 billion of leveraged loans, while Alliance Healthcare Services Inc. scrapped a $590 million refinancing and Norit Holding BV canceled a $110 million second- lien dividend loan, Bloomberg data show.
“The market has been a little choppy,” said Paul Kauffman, partner at Highland Capital Management LP, which has $18 billion in loan investments. “Buyers are being pretty selective.”
Greek Prime Minister George Papandreou rallied enough votes in parliament on June 29 to pass the first part of an austerity plan needed to secure a European bailout package and stave off default.
“The fact that got passed caused some relief in the market, but they still have a long way to resolving their financial issues,” said Lisa Kasparian, an institutional portfolio manager at Fidelity Investments in Boston.
Germany’s biggest banks and insurers and the government agreed to roll over Greek debt holdings worth at least 2 billion euros ($2.9 billion), Finance Minister Wolfgang Schaeuble said yesterday in Berlin.
The Federal Reserve cut its growth forecast for the U.S. economy before ending its $600 billion second round of quantitative easing, known as QE2, yesterday. The economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April, Fed officials said June 22.
More Americans than forecast applied for unemployment benefits last week, signaling little progress in the labor market. Jobless claims fell by 1,000 to 428,000 in the week ended June 25, Labor Department figures showed yesterday in Washington. Economists surveyed by Bloomberg estimated for claims to drop to a median 420,000.
Investors pulled a record $3.5 billion from high-yield bond funds during the week ended June 22, while bank loan funds had $23 million of inflows, according to data from EPFR Global.
“Demand for loans in the primary and secondary market has slowed down a little, and that has caused spreads to get a little wider,” said Kauffman.
Lawson, which in April agreed to a $2 billion buyout by Golden Gate and business-software provider Infor Global Solutions, increased the interest rate on its $1.04 billion loan to 5.25 percentage points more than the London interbank offered rate, from the 4.5 percentage points originally proposed, according to a person with knowledge of the deal who declined to be identified because the terms are private. The maturity on the debt was reduced to six years, from seven.
The St. Paul, Minnesota-based company sold the loan to investors at 96 cents on the dollar, compared with an initial proposal of 98.5 cents to 99 cents, according to Bloomberg data. So-called original-issue discounts reduce proceeds for the borrower and boost the yield for investors.
SRA International Inc., the provider of computer services to the U.S. government, also increased the rate on an $875 million loan backing its buyout by Providence Equity Partners to 5.25 percentage points more than Libor, from an originally pitched range of 4.25 percentage points to 4.5 percentage points.
Alere Inc., the health-management services provider based in Waltham, Massachusetts, and Norit, the Dutch producer of activated carbon products, each increased the yield to investors on first-liens loans, according to Bloomberg data.
The margin on Alere’s $875 million refinancing term loan B widened to 3.5 percentage points, compared with the originally expected range of 3 percentage points to 3.25 percentage points. The rate on the company’s $250 million revolving credit and $625 million term loan A was boosted to 2.75 percentage points more than Libor, from 2.5 percentage points more than the lending benchmark proposed two weeks earlier, Bloomberg data show.
Norit’s $260 first-lien loan backing a dividend was increased this week to 5.25 percentage points more than libor, from an initial offer of 4.5 percentage points to 4.75 percentage points, according to a person with knowledge of the matter.
Investors are pushing back to say “you’re not paying us enough for the risk in the market today,” Kasparian said. “We like to get that discipline.”
Companies have raised $369 billion of leveraged loans this year, up 93 percent from $191 million during the first half of last year. Leveraged loans are a type of speculative-debt rated less than Baa3 by Moody’s Investors Service and BBB- by S&P.
“We have seen loan prices rebound, coming off their bottom in the last two to three days,” Kauffman said.
The S&P/LSTA U.S. Leveraged Loan 100 Index closed yesterday at 94.22 cents on the dollar, rising three straight days from an almost six-month low of 93.91 cents on June 27.
Prices are still off a Feb. 14 peak of 96.48 cents, the highest price since November 2007.
In a revolving credit facility, money can be borrowed again once it’s repaid; in a term loan, it can’t. A term loan B is sold mainly to non-bank lenders such as collateralized loan obligations, bank loan mutual funds and hedge funds. A term loan A is sold mainly to banks.
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