Magazine article American Banker

AMF Bank Loan Includes Call Protection

Magazine article American Banker

AMF Bank Loan Includes Call Protection

Article excerpt

In a sign that investment banks are blurring the line between bank loans and bonds, lenders have included two-year call protection in a loan for the AMF Group buyout.

The $815 million loan, which Goldman, Sachs & Co. is leading with Citicorp, supports a $1.4 billion leveraged buyout of the bowling company by Goldman Sachs Capital Partners. The call protection applies to a $315 million part of the loan.

Call protection, which requires borrowers to pay a penalty if they pay off a loan before a certain date, is uncommon for bank loans. One of the attractions of a bank loan to the borrower is that there is no prepayment penalty.

"It's the beginning of a trend," said James C. Lewis, division executive of corporate finance at Bank of Boston Corp.

"As the institutional market takes bigger and bigger pieces of bank loans, you could well see more of this," said Simon Jawitz, a vice president and co-head of the bank loan group at Goldman Sachs. The call protection for the AMF loan, and for the others that have used it, applies specifically to the institutional portions of a loan - usually termed B, C, and D tranches - which have a longer duration and a higher return.

"From the investor's point of view, having the call protection gives them additional comfort that they will have the asset longer, and more significantly, it increases the likelihood that the asset may trade in the secondary market above par," Mr. Jawitz said.

"The loans are taking on more-bondlike qualities, which broadens the base of investors that issuers can tap into," said a loan trader. …

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