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Loan Market Commentary 04/05/2010

|Includes:ARCC, BBWPF, BWY, CNX, EMS, FS, HBIO, HCA, NXST, REY, SIX, Tribune Co Debs 29 (TRBCQ)
The loan market was quiet today but things were still felt firmer. A lot of people spent their day wrapping their heads around the new “bullet” language for LCDS contracts, so attention span was an issue. HCA’s new TLB-2 broke for trading today and was well received and traded atop its OID. We saw a lot of activity in healthcare and financial services companies, most names firmed anywhere from an eighth to a quarter. Also, names that were in the news last week continued to be active. Other than that, there is not a whole lot to say in regards to the secondary. The LCDX 13 rolled into the 14 today and started trading at 97 – 97 ¼ and moved up an eighth with equities to close out the day at 97 1/8 – 97 3/8. Volumes in the new LCDX 14 were minimal as people are still figuring out how to trade it. The fact that the coupon was slashed in half to 250 bps is seen as a big deterrent as most of the market is yield driven. It will be interesting to see how this plays out, but for now the LCDX 13 is still the cool kid and was active today, firming a quarter to 104 5/8 – 104 7/8.
  • The new Markit LCDX14 began trading this morning, quoted 97 – 971/4. The new index carries a coupon of 250bp, 250bp tighter than that of the LCDX13. Three issuers were included in the LCDX14 that are not in the LCDX13. Those issuers are Dex Media West, Charter Communications, and Idearc (Supermedia) and the entities that are excluded are NewPage Corp, Getty Images, and Warner Chilcott. The new roll comes in conjunction with the launch of a new "bullet" LCDS contract, making LCDS contracts non-cancellable. Like the LCDX14, single-name LCDS and LCDX tranches will now carry a 250bp fixed coupon. With the new trading conventions and fixed coupon, LCDS contracts will now mirror unsecured CDS contracts, which are both non-cancellable and carry a fixed coupon. Recovery assumptions for LCDS, however, will be higher (at 70%) than their unsecured counterparts. Up till now, LCDS contracts have been "cancellable" in the case where an issuer's senior secured loan gets refinanced or repaid. One problem with this was that it created uncertainty about the default swaps' duration. The thinking is that by giving the contract a fixed maturity, the uncertainty surrounding its duration should be alleviated making it easier to price and therefore to trade.
  • High yield volume exploded to $34.4 billion in March and to $62.8 billion for 1Q10, new all-time records for monthly and quarterly new issuance. The previous records were set during the heyday of leveraged buyouts in November 2006 and 4Q06 when volumes were $28.9 billion and $57.7 billion, respectively. Volume for the most recent holiday-shortened week was $5.2 billion spread among 15 deals. Now, these numbers may spark feelings of euphoria and give reason to celebrate but the question you must ask yourself is “are we in a better place than we were in 2006?” I don’t think many would say yes to that statement. The primary market is hot because investors crave yield and therefore borrowers can tap the market with ease. The majority of these deals are helping companies that see trouble on the horizon push out maturity dates and pay-off existing loans that are close to breaching covenants. So, this is a big bet that our economy will be booming come 2014/2015/2016.
  • Some of Tribune Co's lenders are seeking documents from bondholder Centerbridge Partners LP relating to the media group's stock purchases and 2007 leveraged buyout, according to court filings. A group of credit agreement lenders, including Kohlberg Kravis Roberts & Co and GoldenTree Asset Management LLP, has asked the court to approve a so-called Rule 2004 discovery, according to a motion filed in the U.S. bankruptcy court in Delaware on Friday. Rule 2004 allows a party in a bankruptcy proceeding to compel discovery or other examination against another party. The lenders, which also include hedge funds and other investment firms, are asking for authorization to conduct discovery of Centerbridge Partners, Centerbridge Credit Advisors LLC and their affiliates, saying the bondholder's opposition to Tribune's buyout is an "about-face." "Given Centerbridge's about-face contention that the transactions were fraudulent, it is appropriate that Centerbridge disclose how it formed its contemporaneous, but now apparently disowned (opinions)," the lenders said in court documents. Centerbridge is Tribune's largest public debtholder, with about 37 percent, or about $475 million, of senior notes, according to court documents. A hearing on this matter is scheduled for April 13.
  • Six Flags Inc filed an amended plan of reorganization formalizing last month's agreement putting junior bondholders in control of the company when it emerges from bankruptcy. The amended plan, filed on Thursday, represents the third time the company's management has changed sides in the bankruptcy. This time it dropped its support for a plan backed by bondholders led by Avenue Capital Group, known as SFO noteholders, in favor of a plan proposed by bondholders led by Stark Investments, known as SFI noteholders. The newest plan proposes to use new debt and an equity investment by the Stark Investments-led bondholders to pay the claims of secured lenders and the Avenue Capital-led bondholders.
  • Four Seasons Hotels Inc is scheduled to have a bank meeting on April 14, sources said. No other information was provided. The hotel chain has an existing $950 million three-tranche financing led by Citi and JP Morgan from 2007.
On the Break
  • HCA's extended, $2 billion TLB-2 is bid around 98.25 after freeing to trade today. The non-extended TLB-1 is trading 97.5-98. The issuer was initially seeking to extend $1 billion of its term debt from November 2013 to March 2017 at a 100bp increase in spread to LIB+325. Bank of America Merrill Lynch, Citi and JP Morgan led the amendment. Earlier this month, HCA priced $1.4 billion in senior secured bonds to prepay bank debt. The notes were priced at a discount to yield 7.375%.
New Issue
  • Emergency Medical Services Corp's two tranche deal was heavily oversubscribed and commitments were scaled back by more than 50%. Over 25 lenders are in the deal including lead arrangers Bank of America Merrill Lynch, JP Morgan and Barclays Capital.
  • Early price guidance on Reynolds & Reynolds' $1.82 billion, seven-year term loan is in the mid LIB+300 area. A bank meeting is scheduled for 9:00 a.m. tomorrow. An OID and a Libor floor are to be determined. The $1.895 billion deal is split into the $1.82 billion term loan and a $75 million, five-year revolving credit facility. Proceeds are to refinance the company's existing first-, second- and third-lien term loans. Deutsche Bank, Bank of America Merrill Lynch and Credit Suisse are lead arrangers.
  • Credit Suisse is launching Wednesday at 9:30 a.m. a $900 million refinancing for Advantage Sales and Marketing (NYSEMKT:ASM). The deal includes a $625 million, six-year first-lien term loan and a $275 million, seven-year second-lien term loan. Price talk on the first-lien loan is LIB+375 with a 99 OID and a 2% Libor floor. Price talk on the second-lien loan is LIB+750 with a 98.5 OID and a 2% Libor floor. The second-lien loan has call protection of 103, 102, 101 and par. Commitments are due April 21. ASM provides outsourced sales and marketing services to manufacturers and suppliers of consumer goods.
  • GE Capital is launching Wednesday a $145 million deal to refinance debt at Warburg Pincus-owned Scotsman Industries. The deal consists of a $30 million revolving credit facility and a $115 million term loan. The company is a supplier of commercial ice machines.
  • American Residential Services is issuing $150 million of five-year, senior secured second lien notes, sources said. UBS and Jefferies are joint bookrunners and William Blair is co-manager. The notes are non callable for 2.5 years. Proceeds are to refinance a second-lien term loan facility and repay a portion of outstanding borrowings under the company's revolving credit facility. The company provides heating, ventilation and air conditioning, plumbing and energy efficiency services for the residential and light commercial markets.
  • Ares Capital Corp has raised $715 million for its senior secured multi-currency revolving credit facility due Jan. 22, 2013, sources said. The facility can be upsized to up to $1.05 billion. Lead arrangers Bank of America Merrill Lynch, JP Morgan and Suntrust hold $125 million each. Bank of Montreal came in with $100 million, while four others joined with $50 million each: BB&T, Deutsche Bank, Morgan Stanley and UBS. State Bank of India holds $25 million and City National Bank joined with $15 million. Pricing opens at LIB+300 with a 50bp undrawn fee based on BBB rating. Proceeds are for general corporate purposes including the acquisition and funding of portfolio investments. Financial covenants include a minimum net worth of 40% of total assets or $750 million plus 25% of net proceeds of equity issued plus 50% of value of equity issued in connection with Allied Capital Corp acquisition, and a minimum ratio of assets to debt of two times.
  • Bank of America Merrill Lynch and Deutsche Bank have committed to provide a $565 million bank loan to back Madison Dearborn Partners' $915 million buyout of BWAY Holding Co, according to an SEC filing. The loan includes a $75 million revolving credit facility and a $490 million term loan. In addition, the company will raise a $200 million unsecured bridge facility. The purchase price includes the assumption of debt. Under the agreement, BWAY shareholders will receive $20 for each share of BWAY common stock they own, representing a premium, based on the closing price on March 26, of approximately 25% over the 30-day average closing trading price and 16% over the 90-day average closing trading price.
  • GE Capital will launch Thursday a $315 million deal to refinance existing debt at bike components maker SRAM. The deal includes a $25 million revolving credit facility and a $290 million term loan. The company has an existing $25 million revolver and a $240 million term loan (LIB+500) from 2008. That deal was used to back its LBO by Lehman Brothers Merchant Banking Group.
  • Willbros Group Inc is scheduled to have a bank meeting this Friday for its $475 million two-tranche financing backing its acquisition of InfrastruX Group. Credit Agricole and UBS are lead arrangers. The financing has a $300 million, four-year term loan and a $175 million, three-year revolving credit facility. Besides the financing, Willbros is also using a combination of new common stock and cash for the $480 million acquisition. The transaction is expected to close in 2Q10. Goldman Sachs is acting as Willbros' financial advisor. Conner & Winters is serving as Willbros' legal advisor. Financial advisors for InfrastruX were UBS Securities and Credit Suisse Securities. Latham & Watkins LLP is serving as InfrastruX' legal advisor. Willbros is an international provider of engineering, construction and EPC services to the oil, gas and power industries principally in North America and the Middle East. Bellevue, Wash.-based InfrastruX is a provider of end-to-end infrastructure construction services, primarily for the electric and natural gas utility end-markets.
  • Nexstar Broadcasting Inc/Mission Broadcasting Inc (NASDAQ:NXST) USD325m 144A sr sec 2nd lien notes due 2017 (7y). NC4. Ratings TBD. Via BAML/UBS/DB/RBC joint books, CA as co-manager. Roadshow 04/06-08. W/reg rights. UOP: along with an ameded and extended credit facility, to repay its 13% sr sub PIK notes, refinance Nexstar and Mission"s credit facility, and GCP. Biz: owns and operates 62 TV stations in medium-sized markets. HQ: Irving, TX.
  • Harvard Drug Group LLC (Generic Drug Holdings Inc) will launch Wednesday at 2:00 p.m. via Credit Suisse a $182 million bank loan to back the company's acquisition by Court Square Capital. The deal consists of a $160 million, six-year first-lien term loan and a $22 million, 90-day delayed draw term loan. Price talk on the first-lien loan is LIB+450 with a 98 OID and a 2% Libor floor. The delayed-draw term loan also has a 2% Libor floor and a 98 OID, along with a 225bp ticking fee. Commitments are due April 21. Harvard Drug is the largest independent generic-focused pharmaceutical distributor in the U.S.
  • Pricing opens at LIB+250 with a 37.5bp commitment fee for BBB ratings on Babcock & Wilcox's $600 million, four-year revolving credit facility, sources said. Banks are invited to join at a top-level upfront fee of 75bp for $50 million or more tickets, or 50bp for less than $50 million tickets. B&W's revolver is led by Bank of America Merrill Lynch, Wells Fargo, JP Morgan, BNP Paribas and Credit Agricole. Meanwhile, JRay is seeking a $900 million, four-year revolver led by Credit Agricole, BAML, Wells, BNP and Scotia Capital.
  • Coal and natural gas producer Consol Energy's $1.5 billion, four-year senior secured revolving credit facility is offering a top-level upfront fee of 100bp for $75 million tickets. Two other ticket levels offer 87.5bp for $50 million and 75bp for less than $50 million. Commitments are due April 14. Meanwhile, subsidiary CNX Gas Co's $500 million, four-year borrowing base facility is initially priced at LIB+200 with a 50bp undrawn fee based on usage of less than 25%. Pricing steps up to LIB+225 if usage is less than 50%, LIB+250 for less than 75%, LIB+275 for less than 90% and LIB+300 for over 90%. Pricing on Consol Energy's facility is LIB+350 with a 50bp undrawn fee based on a leverage ratio of 3.5 times or more. Bank of America Merrill Lynch and PNC Bank are leads. Consol announced that it would sell $1.5 billion of 8% senior notes due 2017 and $1.25 billion of 8.25% senior notes due 2020 to finance a portion of the $3.475 billion purchase price for the Appalachian acquisition. The acquisition is expected to close by April 30, 2010.