Alltel Banks Cut Loan Sale Size a Second Time, Investors Say

By Pierre Paulden and Bryan Keogh


Nov. 15 (Bloomberg) -- Banks for TPG Inc. and Goldman Sachs Group Inc. reduced the size of the loan they are selling for the purchase of Alltel Corp. to $3.2 billion, the second cut in as many days, according to investors briefed on the decision.

Goldman Sachs, Citigroup Inc. and RBS Greenwich Capital initially planned to sell $6 billion of the $14.4 billion of loans used to finance the purchase of the Little Rock, Arkansas- based mobile-telephone provider. They cut that to $4.8 billion yesterday and reduced the size again today after failing to find demand, according to the investors who declined to be named because the terms aren't set.

The banks were forced yesterday to deepen the discount on the loan to as low as 96 cents on the dollar from 97.5 cents. The struggle by Alltel's banks to offload the debt demonstrates a renewed reluctance among investors to buy leveraged loans. After appetite returned last month, concerns about losses from subprime mortgages sapped demand.

``There is a tremendous amount of fear still in the marketplace,'' said Peter Plaut, an analyst at New York-based hedge fund manager Sanno Point Capital Management LLC. ``People are extremely cautious putting money to work given the volatility.''

The banks will also start selling $1 billion to $2 billion of bonds that will help finance the purchase, according to a person familiar with that sale. The eight-year notes will be sold at a discount to yield 11 percent, said the person, who declined to be named because the deal hasn't been completed.

Alltel had planned to sell $7.7 billion in senior unsecured notes, including $2.5 billion in so-called toggle bonds, to pay for the buyout.

Loan Yields

The Alltel loan will yield 275 basis points above the London interbank offered rate, bankers said. A discount of 4 cents on the dollar amounts to a loss of $128 million for the banks, according to data compiled by Bloomberg. Three-month Libor is 4.91 percent.

Goldman and TPG agreed to buy Alltel in May for $27.5 billion including debt. Investors, who will receive $71.50 for each share, approved the buyout in August. Alltel's banks will still be left holding $11.2 billion in loans it extended to the companies to finance the purchase.