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* Equiniti cancels high yield bond after FCA hiccup
* Equiniti to pay premium due to wider credit spreads
* Critics point blame at both FCA and lead managers
By Natalie Harrison and Robert Smith
LONDON, June 4 (IFR) - Business services firm Equiniti hasbeen forced to relaunch a GBP440m high yield bond, two weeksafter pricing the original deal, after the UK Financial ConductAuthority failed to approve the transaction.
The failure to settle after pricing, due to a regulatorydecision, is unprecedented in the European high yield market,according to market sources who placed the blame variously atthe FCA and those managing the deal.
The cancellation of the bond drew heavy criticism frommarket observers who note the company will pay significantlymore on the relaunch following a near 60bp widening in theiTraxx Crossover index since the bond priced on May 23.
Price talk was announced late morning at 7-7.25% on theGBP250m 5NC2 fixed rate tranche and Libor plus 575bp area on theGBP190m 5NC1 floater. The original tranches, which had the samesize and structure, priced at a 6.75% yield and Libor plus 550bprespectively.
One observer described the execution of the deal by leftlead JP Morgan and bookrunners Lloyds and Citi as "shoddy".
"The leads have had to rip it up and start again. I havenever seen this happen in Europe before," said one seniorleveraged finance banker.
JP Morgan, Citi and the FCA declined to comment. Lloydscould not be immediately reached for comment.
Equiniti is moving a subsidiary called Paymaster into itscorporate structure, which is subject to regulation by the FCA.
According to sources close to the deal, Equiniti believedthat this would be rubber stamped by the FCA, but as Equinitiexplained in an official statement: "We were subsequentlyrequired to apply for formal consent to the transfer."
Even at this stage, the FCA intimated that formal approvalwould be forthcoming in the coming days, according to thesesources, and the legal advice from all parties was that approvalwould come before the settlement date on June 4.
"However, after the close of markets on Friday, May 31, 2013we learned that [the FCA] will not be in a position to granttheir consent prior to settlement," Equiniti said.
IN A ROUGH SPOT
The previous bond has been cancelled because the FCA has notapproved the deal. The proceeds of the new bond, to be issuedout of a different vehicle called Equinti Newco 2, will be putinto an escrow account until FCA approval for the Paymasterrestructuring is given.
A source close to the matter said that the FCA has up to 130days after issuance to approve the bond, although a decisionwithin 55 days is expected.
Although this situation is new in Europe, the source saidthat similar cases have happened in the US high yield market afew times.
"The whole thing has blown up due to a combination of theFCA issue coming up late in the process and the legal attorneysadvising that the probability of it handicapping the bond beingvery low," the source said.
"It's pretty incredible the FCA has done this, given thatthey knew exactly what the implications were. The company's beenput in a rough spot."
Other observers said that the leads should have placed theproceeds in escrow the first time around, which would have meantthat the bonds would have repaid at par without having to cancelthe whole transaction.
"An escrow account was not seen as necessary at first,because Equiniti did not think the FCA approval was needed,"said the source.
"When the issue arose it was too late to set up an escrow,and the advice received was that the approval would beforthcoming anyway."
The relaunch of the deal has caused significant headaches,particularly as the bonds have been trading in the secondarymarket above their par launch prices.
Bankers started reconstructing the book yesterday, but theprocess has been complicated by the fact that some investors,unhappy with their original allocation, added to their positionsafter pricing. This makes it difficult to reallocate the deal.
"Arguably this is a good thing for investors, as they getthe same deal a week later at a better price," said the source.
Equiniti is 77% owned by private equity firm AdventInternational. (Reporting by Natalie Harrison and Robert Smith; editing byJulian Baker, Alex Chambers)
