(Bloomberg) --A group of banks led by Bank of Montreal had to rework a debt sale that financed Warburg Pincus' purchase of a stake in health-care services outsourcing firm Everise after failing to garner enough demand from institutional lenders, according to people with knowledge of the matter.
When buyers balked at a planned $425 million loan B that would pay for a portion of the purchase, the banks reduced the size of the loan sold to investors to $250 million and kept the rest — about $175 million — in the form of a term loan A to offload later, said the people, who declined to be identified as the details are private.
They also boosted terms for those that bought the smaller term loan B to 6 percentage points over the Secured Overnight Financing Rate, according to the people. The debt ended up pricing in the low 90s, the people said.
The $425 million loan was initially offered in the range of 5.5 to 5.75 percentage points over the benchmark and a discounted price of 97 cents on the dollar.
The new 5.5-year term loan A that's sitting with the banks pays 3.75 percentage points over SOFR and was issued at par, said the people. Term loan As are a type of financing typically sold to and held by banks. They carry lower interest rates compared to syndicated loans sold to investors.
The new term loan B has a shorter tenor than the original proposal, maturing in six years instead of seven, the people added.
Representatives for BMO and Warburg declined to comment, while spokespeople for Brookfield and Everise didn't reply to a request for comment.
Banks began marketing the loan, which funded a 47% stake purchase in Everise in early November. But the sale for the B3 rated debt struggled and dragged on for over a month.
Although small, it's the first debt offering for a buyout that banks have been forced to fund in recent months after they were saddled with billions of LBO financings in 2022. The LBO financing for X, previously known as Twitter Inc., was among them. Seven banks led by Morgan Stanley, were stuck with $12.5 billion debt after they were unable to sell it to outside investors, Bloomberg reported. Holding onto debt, only to later sell it at a discount, can erode fees and leave banks with losses.
While credit markets have rallied into year-end, other recent broadly syndicated transactions have still struggled to find demand. In recent weeks, banks had to cut pricing and offer investor-friendly terms on the loan that would pay for TPG's purchase of a majority stake in A-Gas, while other firms like Greenway Health turned to private lenders to refinance maturing obligations after failing to find enough interest in the leveraged loan market.
Warburg completed the purchase of the stake on Thursday, after the debt was allocated on Wednesday. The investment values the company at around $1 billion, according to a statement.
