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Archstone’s Bank Loans Going Nowhere Fast

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There’s no doubt that Planet LBO is a calmer place now than it was through much of the summer. But it’s not exactly terra firma yet. One of the shakiest deals in the pipeline is the buyout of real estate investment trust Archstone-Smith Trust. Lehman Brothers and Tishman Speyer are putting just $500 million of their own money into the $21 billion deal, with the rest coming in the form of bridge equity and debt.
Yesterday Lehman Brothers and Bank of America began their attempt to sell $3.15 billion of the $4.96 billion bank loans financing the debt. The loans consist of a $750 million revolver and a $2.4 billion term loan, each priced at 300 basis points over LIBOR. But word is that they are running into resistance from investors who are surprised the debt is not discounted more heavily.
Reuter’s Jonathan Keehner reports that banks are offering the term loan at 99 cents on the dollar, and this has some would be investors balking. As Keehner gently puts it, the one cent hair cut prices the loans substantially “above where other recent buyout financings have closed or been discussed.”
Not everyone is being so delicate.
"Archstone is a good company, it's got great assets, and bankers probably thought they could sell at this price," said a buyside analyst tells Keehner. "But my initial view is that a lot of deals are coming in at the mid-90s, and this is coming in at 99 cents on the dollar. It looks rich to me.”
We’re told the situation is beginning to look hopeless. And part of the problem may be Lehman’s conflicting interests. As both the buyer and one of the lead lenders—a dual role that many banks considered a win-win situation in happier times—Lehman may have put itself between a rock and a hard place.
Let’s go to the Keehner tape again, this time from Reuter’s Dealzone blog. “Either way Lehman takes a hit: as a principal, renegotiating on any terms could hurt potential profits. But by also banking the deal, Lehman otherwise risks having the debt clog its balance sheet or sold at a loss,” Keehner writes.
Archstone loans appear priced at pre-crunch level [Reuters]
Lehman’s double trouble in Archstone [DealZone]