Lpc citi adding tranche to us$25bn petco loan with no libor floor

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Jan 14 Citigroup is adding a new tranche to the US$2.5bn loan backing the buyout of Petco Animal Supplies that will not have a Libor floor to protect returns for Collateralized Loan Obligation (CLO) funds, the main buyers of leveraged loans. Libor floors guarantee minimum returns for investors, but are threatening CLO funds' returns as Libor rates rise. The new tranche with no Libor floor is being added after the deal received pushback from investors, sources said.

The new tranche may be around US$500m in size, depending on demand. It will be offered with a rate of 500bp and a discount of 98 cents on the dollar, the source said.

The existing term loan which has a Libor floor will now pay 475bp with a 1% floor at 98 cents.

The total size of the term loan will remain at US$2.5bn and be adjusted based on demand for the no-floor tranche.