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  • Loan Market Commentary 06/23/2010 0 comments
    Jun 23, 2010 6:15 PM
    Well, we can’t stimulate ourselves out of this mess; the housing numbers this morning showed a 32.7 decline in new home sales. Thanks for the tax credit but with unemployment as low as it is, income growing at a rather slow pace and with tighter lending standards it is tough to find qualified buyer to purchase a home. So, unless we bring the SISA loan back, its going to take time for housing to correct itself. Being that the number was worse than most were expecting, the market dropped off sharply. Equities rallied their way back up into the Fed announcement in anticipation that they would have some good news to share. As expected the FOMC kept rate between 0.0-0.25% and kept the “extended period” language. The kicker was the following statement, “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad” ; equities sold off as a result. But, if you had paid attention to recent events it should have come as no surprise. Equities finished essentially flat; DJI 10,298.44 (+0.05%), SPX 1092.04 (-0.3%).
     
    In the loan market things opened up weaker, high beta names were again off another a quarter to half a point. Most of the vintage deals continue to soften since buyers out there are only interested in the recently issued term loans that offer richer spreads and higher LIBOR floors. Most 2010 vintage loans firmed an eighth to a quarter point. But, volume today was really light so these price movements were not driven primarily buying/selling. The LCDX 14 was off a quarter today to 95 5/8 – 95 7/8 and sat there for the rest of the day. In all not much happened today and it was tough to gauge a direction in the market as advancer and decliners were evenly matched. I would expect for tomorrow to be another quiet day. We do get durable goods orders and initial jobless claims in the morning so hopefully there won’t be any surprises. Keep an eye on the overseas markets; they have been rather quiet this week. Sleep well.
     
    News
    • New home sales tumble record 32.7 percent
    • Fed softens economy view as it renews low-rate vow
    • Obama fires US Afghan commander, names Petraeus
    • Budget supports Britain's triple A rating-Moody's
    • US House drops $150 bln liquidation fund-document
    • G20 to warn on complacency; fiscal fight looms
    • GM readies IPO filing, in auto loan talks-sources
    • Treasuries extend gains slightly after Fed rates decision
    • US House drops $150 bln liquidation fund-document
    • Gilts lag Bunds after BoE minutes sound hawkish note
     
    FOMC Statement
    • Household spending is increasing but remains constrained
    • Business spending on equipment and software has risen significantly
    • Employers remain reluctant to add to payrolls
    • Housing starts remain at a depressed level
    • Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad
    • The pace of economic recovery is likely to be moderate for a time.
    • Inflation is likely to be subdued for some time.
    • The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions,…, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
    On the Break
    • Canwest Global Communications' new $300 million exit term loan broke for trading in the 97.5-98.5 range, sources said. The loan is priced at LIB+700 with a 2% Libor floor and an OID of 97. The loan benefits from 101 call protection. JP Morgan and Morgan Stanley lead the deal.
    New Issues-Loans
    • Foster Wheeler is in the market with a $450 million, four-year secured revolving credit facility. Pricing opens at LIB+325 with a 37.5bp undrawn fee based on BB+/Ba1 ratings. Banks are invited to join at an upfront fee of 50bp for commitments of $35 million or 40bp for $25 million. Financial covenants include a leverage ratio of 3.5 times and an interest coverage ratio of three times. Proceeds are for refinancing and commitments are due by July 7.
    • Cummins Inc is seeking a $1.1 billion, four-year unsecured revolving credit facility, sources said. JP Morgan and Bank of America Merrill Lynch are leads. Pricing opens at LIB+225 with a 37.5bp commitment fee based on split ratings of BBB/Baa3. Banks are invited to join at an upfront fee of 70bp for commitments of $100 million, 60bp for $75 million or 50bp for $50 million. Proceeds refinance a $1.1 billion, three-year facility due June 2011.
    • A $600 million pro rata loan for Jack in the Box is oversubscribed. The Wachovia Wells Fargo-led deal includes a $400 million, five-year revolving credit facility and a $200 million, five-year term loan A. Pricing is LIB+250. The corporate family rating is Ba3/BB-, while the facility rating is Ba3/BB+. Proceeds are to refinance the company's existing credit facilities, including a $150 million revolver due 2011 and a $475 million TLA due 2012. The facilities were obtained to fund a stock buyback in 2006 and were priced at LIB+137.5.
    • Lincoln National Corp has sealed a $2 billion, two-tranche deal. The refinancing is divided into a $500 million, 364-day revolving credit facility and a $1.5 billion, four-year letter of credit facility. The 364-day tranche pays LIB+200 with a 37.5bp undrawn fee and the four-year tranche pays LIB+180.
    • Valeant Pharmaceuticals and Biovail are backing their merger with $3.022 billion in loans from Goldman Sachs, Jefferies and Morgan Stanley. The credit includes a $250 million, 4.5-year revolving credit facility, a $500 million, five-year term loan A and a $2.272 billion, six-year term loan B, of which $300 million will be available on a delayed-draw basis. The revolver and TLA will be priced at LIB+450 and the TLB will be priced at LIB+475 with a 1.75% Libor floor, according to the commitment letter. Pricing on all three tranches will step down by 25bp if the facility ratings are at least Ba3/BB- by closing. Conversely, pricing will step up by 75bp if facility ratings are B2/B or lower. The revolver and delayed-draw tranches will have a 75bp undrawn fee.
    Price Talk
    • The OID on GEO Group's $200 million, seven-year term loan B is 99. The $750 million credit includes a $400 million, five-year revolving credit facility and a $150 million, five-year delayed-draw term loan A. The TLB is indicatively priced at LIB+325 with a 1.5% Libor floor. The revolver and TLA are indicatively priced at LIB+275 at the initial tier on a leverage-based grid. Proceeds will be used to refinance the company's existing $484 million credit facilities and partially fund the company's acquisition of Cornell Cos.
    • Price talk on Interactive Data Corp's $1.3 billion term loan B is LIB+475 with a 1.75% Libor floor and an OID in the 98 area. There is 101 soft call protection for one year. The corporate family rating is B2/B. The facility rating is Ba3/B+.
    • Price talk on Ocwen Financial Corp's $350 million senior secured term loan is LIB+700 with a 2% Libor floor and an OID of 98-99. The facility carries a B1 rating.
    New Issues-High Yield
    • DynCorp International Inc: USD455m 144A/Reg S sr unsec notes 2017 (7y). NC4. B1/B (stable/stable). Gtd by issuer"s direct parent and each of its domestic subs. Via Citi/BAML/Barc/DB joint books. W/reg rights. Roadshow 06/21- 28 (also investor call at noon 06/22). Pricing 06/29. UOP: along with a USD715m sr sec credit facility (USD565m term loan and USD150m revolver) and USD591.6m equity, to fund LBO of DynCorp by Cerberus for USD17.55 per share or a total value including the assumption of debt of USD1.5bn.
    • CKE Restaurants: (CKR) USD600m 144A sr sec 2nd lien notes due 2018 (8y). NC4. B2/B. Via MS/Citi/RBC joint books. W/reg rights. Roadshow 06/23-29 (also investor call 11am 06/23). Pricing mid 06/28 week. UOP: Fund the acquisition of CKE by Apollo for USD12.55 cash per share (approximately USD1.05bn total value, including the assumption of approximately USD309m net debt). Also new USD100m sr sec revolver and USD456m equity from Apollo.
    • Bankrate Inc: USD280m 144A sr sec notes due 2015 (5y). NC3 (MWC T+50bp). Equity call 3y 35%. B2/B (stable/stable). Via Jeffries/RBC joint books. W/reg rights. Roadshow 06/21-30. UOP: partially finance the acquisition of NetQuote Inc and the acquisition of CreditCards.com Inc.
    Ratings
    • Standard & Poor's Ratings Services said today that Valeant Pharmaceuticals International's (BB-/Stable/--) announced intention to merge with Biovail has no effect on its ratings or outlook for the company.
    • Moody's Investors Service has raised Office Depot's speculative grade liquidity rating to SGL-1 from SGL-2.
     
    What to watch Tomorrow, June 24
    • Durable goods, May (Census Bureau) 8:30 a.m. ET
    • Initial claims (Department of Labor) 8:30 a.m. ET
    • Treasury to auction $30 billion seven-year notes
    • Health Net, Inc. at Wells Fargo health care conference 8:30 a.m. ET
    • Symmetry Medical Inc. at Wells Fargo health care conference 8:30 a.m. ET
    • Beazer Homes USA, Inc. at Deutsche Bank industrials conference 9 a.m. ET
    • RailAmerica Inc. at Deutsche Bank industrials conference 9:40 a.m. ET
    • Lennar Corp. Q2 earnings before market open, conference call 11 a.m. ET
    • Pactiv Corp. at Deutsche Bank industrials conference 11 a.m. ET
    • Health Management Associates, Inc. at Wells Fargo health care conference 11:15 a.m. ET
    • Owens-Illinois, Inc. at Deutsche Bank industrials conference 11:40 a.m. ET
    • Manitowoc Co., Inc. at Deutsche Bank industrials conference 12:20 p.m. ET
    • Genesee & Wyoming Inc. at Deutsche Bank industrials conference 1 p.m. ET
    • Cooper Cos., Inc. at Wells Fargo health care conference 1:30 p.m. ET
    • HealthSouth Corp. at Wells Fargo health care conference 1:30 p.m. ET
    • Cross Country Healthcare, Inc. at Wells Fargo health care conference 2 p.m. ET
    • Graham Packaging Co. Inc. at Deutsche Bank industrials conference 2:45 p.m. ET
    • Rock-Tenn Co. at Deutsche Bank industrials conference 4:05 p.m. ET
     
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