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Bankers re-market struggling Rue21 buyout loans -sources

(Corrects fee increase to US$12 million from US$12 billlion in graf 8)

By Michelle Sierra and Natalie Harrison

NEW YORK, Sept 23 (RLPC/IFR) - Bank of America Merrill Lynch, JP Morgan (Other OTC: JPYYL - news) and Goldman Sachs (NYSE: GS-PB - news) are re-marketing a loan backing the $1.1 billion buyout of retailer Rue21 (NasdaqGS: RUE - news) after investors baulked at the terms on the original deal following weak sales at the company, sources said on Monday.

The revised loan package, which includes a US$150 million asset-based lending revolver, a US$544 million seven-year term loan, and a US$250 million bridge to bonds, was re-launched to investors last week in individual meetings.

When it was first offered to investors on August 6, the original US$533 million seven-year term loan B was guided at LIB+450-475, with a 1% Libor floor, and a 99 issue price. The loan included 101 soft call protection for six months.

The response from investors was lukewarm by the commitment deadline of August 14, sources said. The lack of enthusiasm stemmed from concerns regarding the declining earnings of the apparel retailer.

"We have heard from talking to investors that the deal is being re-marketed, but it is definitely a tough situation," said one source not directly involved in the situation.

The soft sales pattern seen in the second quarter continued into fiscal August 2013 with same store sales down 7.6%.

"While we expect for conditions to improve for the teen retail sector into the holiday season, we are prepared to manage the business for a prolonged period of top line weakness, if necessary," the company said in a statement.

SWEETENER OFFERED

The loans are now being reoffered to investors with changes that include a US$12 million increase in fees and expenses to US$67 million, while the equity contribution of Apax Partners has been increased by US$1 million to US$270 million and the term loan B was increased by $11 million to $544 million, the sources said.

The excess cash flow sweep on the term loan B has also been increased to 75% from 50%. It still includes 101 soft call protection for six months.

If the company were unable to gather enough commitments by the expected closing of the buyout in early October, the banks would have to fund $544 million of the upsized term loan B and the $250 million bridge to bonds, two sources said.

That would leave the banks on the hook with around US$800 million of debt. The exact split of the commitments between the underwriters is not known, but is not thought to be equal, one source said.

Bank of America Merrill Lynch, JP Morgan and Goldman Sachs declined to comment.

Another market source, not directly involved in the deal, said the bonds were not expected to launch until the loans had been placed.

On May 23, Rue21 announced that Apax Partners was acquiring all outstanding shares of Rue21 for US$42 in cash, or an approximate 23% premium to Rue21's May 22 closing price. On September 19, Rue21 said in a release that based on a preliminary vote tally from the special meeting of stockholders, Rue21 stockholders have approved the previously announced merger agreement.

Warrendale, Pennsylvania-headquartered Rue21 offers value-priced clothing to young men and women through 959 stores across 47 states. (Reporting by Michelle Sierra, RLPC and Natalie Harrison, IFR Markets; Editing by Jonathan Methven and Shankar Ramakrishnan)