Bankers are having to alter the way they pitch loans backing recent leveraged buyouts to investors, as a result of continuing uncertainties that have clouded credit markets and led to stalled financings.

"There are a handful of auctions going on. Some are more challenging to finance than others," according to one banker in the leveraged buyout market. "The more challenging ones are likely to get postponed."

What's described in the finance community as a "huge technical change" started with the Federal Reserve saying it would keep its benchmark interest rate near zero for another two years, according to John Cokinos, the head of leveraged finance capital markets at Bank of America Merrill Lynch.

Normally leveraged loans do best in a rising rate environment, he explained, but in today's market, the target audience interested in buying into them has shrunk. Now, in order to get a loan investor interested, banks have to make the loans more fixed-income-oriented, provide more original issue discounts and keep spreads attractive along with raised LIBOR floors, he said. In the future, banks expect to see more call protections and possibly a shift toward secured bonds.

"The yield story remains very valid for the loan asset class, but the rising-rate pitch has lost a bit of luster, given the comments from [Federal Reserve Chairman Ben] Bernanke," said Robert Schleusner, co-head of global leveraged finance at Bank of America Corp., in an e-mail. He attributed the investor retreat from the loan market and the repricing on outstanding issuances to macro uncertainty.

"The asset class remains attractive, and we expect to see interest not only from traditional loan buyers but also high-yield bond buyers as well as equity managers, given higher yields and upside made available via discounts," Schleusner said.

Loans backing the buyouts of education technology company Blackboard Inc. and discount retailer BJ's Wholesale Club Inc. are in the market adjusting their terms, according to data from Standard & Poor's Leveraged Commentary & Data. BJ's seven-year first-lien term loan was reduced by $50 million to $1.075 billion with price up 50 basis points to LIBOR plus 575 and a 96 offer price, which is a 1.5 deeper discount. Deutsche Bank AG, Citigroup Inc., Barclays Capital and Jefferies & Co. are arrangers.

Similarly, on Sept. 16 Blackboard's $780 million first-lien term loan also saw a 50-basis point increase to LIBOR plus 600, with a 1.5% LIBOR floor and a deepened discount to 94-95, according to LCD. The loan is being arranged by BofA, Deutsche Bank and Morgan Stanley. Both carry soft-call premiums.

The market still awaits final terms of the $800 million buyout loan for Go Daddy Group Inc., along with deals of between $250 million and $500 million for the LBOs of Garden Ridge Corp. and Flexera Software Inc. Then there are those who have yet to come to market, including loans backing the buyouts of Emdeon Inc. and Kinetic Concepts Inc. Emdeon has said it plans a $125 million revolver, $1.2 billion of term debt and $750 million of it in bonds.

With ongoing adjustments on loans in the market and fierce negotiations around those expected to come to market, the terms at which buyouts will get done indicate less leverage. Not surprisingly, this has affected new deal volume to the extent that potential private equity buyers are unwilling to stretch equity contributions, while sellers also refuse to accept a lower offer price if they believe performance hasn't changed.

BofA passed on the opportunity to provide financing to interested private equity parties for a potential $1.5 billion buyout of brokerage and investment banking operations of Morgan Keegan & Co., a subsidiary of Regions Financial Corp., the Wall Street Journal reported Wednesday, Sept. 21.

This gives corporate buyers an edge. Packaging materials maker Sealed Air Corp., for example, which acquired hygiene products producer Diversey Holdings Inc. in a $4.3 billion transaction announced in June, completed a $1.5 billion, two-part bond deal, split between a $750 million issue of 8.125% senior notes due 2010 and a $750 million issue of 8.375% senior notes due 2021. Both tranches priced at par.

"I do think that the Street has gotten more selective and terms have definitely shifted," said a banker working on several buyouts.