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 a secondary buyout of U.K.-based undersea energy services company ProServ Ltd made a big loss on the $480 million of debt backing the deal, market sources said on Wednesday.

Goldman Sachs (NYSE: GS-PB - news) , UBS (LSE: 0QNR.L - news) , HSBC and BNP Paribas (LSE: 0HB5.L - news) sold the loans, split between a $365 million first-lien term loan and a $115 million 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. The second-lien term priced at LIB+925 and a discount of 77, and had been guided originally at 96. Both had a 1 percent Libor floor.

Those levels were broadly in line with where secondary market prices on other energy and energy-related names are trading.

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

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

Credit agreements usually include such language to allow underwriting banks to adjust pricing up to a certain limit. It acts as an insurance against potential market swings.

None of the four banks immediately returned calls for comment.

The underwriters originally tried to sell the loans about a month after the buyout of the Scotland headquartered company by Riverstone 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 struggled to find traction with the buyside even as oil prices showed some signs of stabilization. Oil prices hit their lowest point in January when they touched near $45 per barrel, but have recovered to $50.74 per barrel.

"Nobody predicted oil dropping as much as it did. They underwrote the wrong loan at the wrong time. It would have happened 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 slightly higher at 80-82, but there were no quotes for the second-lien loan, the sources said. (Reporting by Mariana Santibanez at IFR and Jonathan Schwarzberg and Lisa Lee at TRLPC; Editing by Michelle Sierra and Lynn Adler)