GTCR Golder Rauner last week ponied up an eye-popping 61/ 4% up-front fee to entice investors to join the credit backing its acquisition of TSI Telecommunication Services from Verizon Commuications. The expensive move, footed by the sponsor, put the deal over the top with investors who were reluctant to jump into the unfavorable telecommunications sector. Bankers expressed surprise at the size of the fee, but noted an uphill struggle was expected as lead bank Lehman Brothers was betting on a market improvement that would have helped its aggressive financing package.
One banker said the up-front fee was raised by 43/ 4% to 61/ 4% and the pricing was flexed a full 1% to LIBOR plus 41/ 2%. The bond yield ended up in the 13 1/4% range, up from the intended 12%, another banker added, noting "GTCR will have to pick the tab up on this." Lehman bankers did not return repeated calls. The final structure was said to be a $315 million of bank debt and a $245 million bond offering.
Colin Roche, GTCR v.p., refused to be drawn on the pricing issue, but instead said, "GTCR is extremely pleased with TSI, the caliber of the company and its management. We look forward to creating value together once we close the transaction." On Lehman's efforts, he noted, "Lehman has been a good partner with us in the transaction." Some sympathetic bankers said the market is in the middle of a very difficult period, and that GTCR pitched TSI as a transaction processing company but it got lumped in with the unattractive telecoms sector. The deal was overhauled, with an accelerated amortization schedule, call protection thrown in, the "A" and "B" tranches merged and $25 million less bank debt than intended.
The aggressive financing plan propelled Lehman and GTCR's $800 million cash bid (LMW, 12/17), but rival bankers suggested at the time Lehman was going too far in providing too much cash against too little equity compared to other deals in the market. One banker said at the time, "If Lehman pulls this off, they will walk on water." He said last week, "Evidently not."