It appeared to be a closed book issue for private placement market investors last week as many turned away from a $60 million credit-tenant lease transaction being prepped by Borders Books.
"It's specialty retail - that's a dirty word around here," said one investor, explaining why he passed on the deal. "It's a tough business. Where are you going to buy your books ten years from now?"
Another buyside source who also viewed the deal as a no-go added: "First of all, we're not too thrilled about the retail industry in general, especially something like bookstores; who knows if there will be a need for them in the future?"
The deal, which is being led by McDonald Investments Inc., is expected to hit the market next week with a proposed 20-year final maturity and a 15-year average life. Price talk is supposed to be in the area of 100 basis points over Treasurys, sources say.
"It's a business financing," one investor said. "You know, 13 bookstores and distribution centers for 20 years? That's not a proposition that interests me."
A company spokesman for McDonald Investments expressed that the deal is doing quite well in the market, despite the sentiment that some investors feel.
"We already have circles in the transaction at price talk and management is on its way to do lender calls this week," he said. "So to make any negative connotations on the transaction would be totally false."
Although the transaction has yet to be looked at by any of the ratings agencies, Borders currently has an existing NAIC-1 rating.
Considered to be the number two bookstore operator in the United States, Borders Books, owned by Borders Group Inc., has stores in all 50 states and in the United Kingdom, Australia, and Singapore. Its nearly 1,200 retail stores include more than 300 Borders superstores, about 900 mall-based Waldenbooks stores, and the U.K.-based Books etc. chain.