News reached us this week of a new Dr. Seuss book to be published July 28th. “What Pet Should I Get” was apparently written by the legendary children’s author some fifty years ago, but thought to be lost. Mrs. Seuss discovered the manuscript (and two others) while she was “cleaning out his office.” Her husband died in 1991.
As someone who cleans their office religiously every eleven years, we can attest to the exhilaration of finding “Oh-there-it-is!” gems. Though not of the rhyming variety, we recently uncovered a column we had written some time ago on the art of pricing a deal.
We say “art,” though pricing leveraged loans is often portrayed as a science by practitioners on the sell-side, particularly to their private equity clients. The truth is that determining where to set spreads, fees, and Libor floors at syndication is a black box. But let’s take a look at some of the factors we’ve found in our experience go into that box.
First are comparables, or “comps.” In capital markets lingo, these are recent transactions (like our Select Deals in the Market) sell-siders scrutinize when pricing new deals to be launched. The question, of course, is whether Deal A is truly comparable to Deal B. Considerations include ebitda size, rating, leverage, quality of the sponsor, size of the financing, and industry.