Magazine article American Banker

CIBC Loan for Drug Retailer Gets Surprisingly High Grade

Magazine article American Banker

CIBC Loan for Drug Retailer Gets Surprisingly High Grade

Article excerpt

A loan syndicate led by Canadian Imperial Bank of Commerce is taking some unexpected good news to potential investors this week: Moody's Investors Service assigned high ratings to a $1.1 billion loan to finance a buyout of Shoppers Drug Mart.

The loan, which will finance Kohlberg Kravis Roberts & Co.'s buyout of Shoppers, had been pegged by bankers as a potential flop, not because of the deal's shaky structure -- the loan is secured by company stock rather then tangible assets such as real estate or inventory -- but because the loan lacked what bankers call the "greed factor," or fat returns.

CIBC, Bank of Nova Scotia, and Merrill Lynch & Co. are syndicating a $241 million revolving credit facility repriced at the London interbank offered rate plus 300 basis points, a $345 million, seven-year term loan priced at Libor plus 300 basis points, and two institutional tranches of $259 million each, priced at Libor plus 325 and Libor plus 350. The terms were was seen as at or below levels of B-rated loans, and most bankers had expected the loan to carry a B rating.

Fortunes for CIBC changed, however, Friday when Moody's rated the Shoppers loan Ba3, equivalent to a BB-minus rating by Standard & Poor's and a notch higher than many bankers expected. The higher rating is significant because many portfolio managers are restricted from buying loans rated below BB-minus.

Elaine Francolino, a vice president and senior analyst for corporate finance ratings at Moody's, said Moody's considered the thin collateral of the loan. …

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