The Wall Street Journal-20080212-Deal Journal - Breaking Insight From WSJ-com

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Deal Journal / Breaking Insight From WSJ.com

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Credit Suisse Debt:

Everything Must Go

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Firm Manages to Distribute

Stakes While Rivals Struggle;

New Rule: Every Bank for Itself

In a credit crunch, banks looking to sell debt backing a big leveraged buyout can't take anything for granted -- starting with, say, the existence of buyers. Credit Suisse Group, for one, has managed to distribute its stakes in some big deals while rivals struggled.

Here is a look inside that process.

-- Harrah's Entertainment: In December, Credit Suisse took its portion of a $7.2 billion loan backing the $17.7 billion buyout and, according to a person familiar with the matter, hedged it ahead of the other banks. That meant a tight market wasn't flooded with too much supply of the same deal. Other underwriters tried their big syndication last week; it fell flat.

The decision to break ranks has several precedents since the credit crunch began in June: HSBC Holdings kept its portion of the debt sale backing the First Data buyout on its balance sheet, deciding to wait for a better price than the rest of the sale was garnering.

Bank of America did the same with a portion of the financing for the Bausch & Lomb buyout. Isn't breaking ranks against some kind of rule? Well, the credit crunch has created its own rule: every bank for itself.

-- Intelsat: Credit Suisse faced a $5 billion debt sale connected to the acquisition of the satellite operator by private-equity firms BC Partners and Silver Lake Partners. The sale of the debt should have been fraught with risk, considering it pushed the company's debt at the holding-company level to more than a hefty nine times earnings before interest, taxes, depreciation and amortization. Moody's also cut its rating on Intelsat.

So, Credit Suisse worked out an amendment with Intelsat's existing lenders, who agreed to stay in place, a person familiar with the matter says. Again, Credit Suisse was able to decrease the supply going into the public markets, this time in return for paying those lenders a big fee, this person says.

-- Blackstone-ADS: Credit Suisse held three term loans related to this still-pending deal, which includes $1 billion of debt to be sold by Credit Suisse. The Credit Suisse leveraged-finance team went on a roadshow to gauge investor interest in buying the debt attached to the buyout. According to two people familiar with the deal, Credit Suisse in December sold off all of its first tranche of debt at around 93 cents on the dollar. It offered the other underwriters a chance to get the same price, but nearly all declined.

Late in December, as things started to tighten further, Credit Suisse went to the markets again to sell a second tranche at approximately 96 cents on the dollar. The bank could get a higher price in part because it offered financing to the buyers to help get the debt off its balance sheet. This time, another bank saw an opening -- and the success of Credit Suisse's previous attempt -- and jumped in. The third tranche is a revolving credit line that Credit Suisse still holds.

Though Credit Suisse used different strategies in each case, there is a single theme: keep the pipeline moving. One person familiar with the financing said, "Holding on to below-market loans and hoping the market will bail you out at some point doesn't feel right, because these are low investment-grade exposures. All of us [banks] are really in the moving, not the storage, business."

-- Heidi Moore