REFILE-Banks take hit on Proserv buyout loans

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By Jonathan Schwarzberg, Mariana Santibanez and Lisa Lee

NEW YORK, Feb 25 (TRLPC/IFR) - Banks that underwrote asecondary buyout of U.K.-based undersea energy services companyProServ Ltd made a big loss on the $480 million of debt backingthe deal, market sources said on Wednesday.

Goldman Sachs, UBS, HSBC and BNP Paribas sold the loans,split between a $365 million first-lien term loan and a $115million second-lien term loan, at sharp discounts on Tuesday.

The first-lien priced at LIB+537.5 with a discount of 79,sources said, and had originally been guided at 98. Thesecond-lien term priced at LIB+925 and a discount of 77, and hadbeen guided originally at 96. Both had a 1 percent Libor floor.

Those levels were broadly in line with where secondarymarket prices on other energy and energy-related names aretrading.

"We knew it would be an OID game with this one, but weweren't expecting OIDs this low," said one of the sources,referring to the discounts.

One investor estimated the loss at $80 million, assumingfive points of flex language.

Credit agreements usually include such language to allowunderwriting banks to adjust pricing up to a certain limit. Itacts as an insurance against potential market swings.

None of the four banks immediately returned calls forcomment.

The underwriters originally tried to sell the loans about amonth after the buyout of the Scotland headquartered company byRiverstone from Intervale Capital was announced in late October,but the plummet in oil prices scared off investors.

The deal was revived this month, but once again it struggledto find traction with the buyside even as oil prices showed somesigns of stabilization. Oil prices hit their lowest point inJanuary when they touched near $45 per barrel, but haverecovered to $50.74 per barrel.

"Nobody predicted oil dropping as much as it did. Theyunderwrote the wrong loan at the wrong time. It would havehappened to any deal," another source said.

The sources said the loans were written off on the banks'books last year.

On Wednesday, the first-lien loan was being quoted slightlyhigher at 80-82, but there were no quotes for the second-lienloan, the sources said. (Reporting by Mariana Santibanez at IFR and JonathanSchwarzberg and Lisa Lee at TRLPC; Editing by Michelle Sierraand Lynn Adler)