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  • Leverage Loan Market Commentary 07/27/2010 0 comments
    Jul 30, 2010 5:13 PM
    Overnight, Europe was firmer after Spain’s debt auction saw strong demand, over 6x oversubscribed, giving further support that sovereign debt fears are easing globally. German consumer confidence also came in at its highest level since November 2009. Lastly, UBS and Deutsche Bank reported strong earnings. Euro indices pushed higher and the U.S. was anticipating a higher open with futures up around 1%. For the first hour, the U.S. markets did surge, but July consumer confidence fell to 50.4 from 54.3 causing the market to reverse course and Europe to pare most of their earlier gains to close slightly above unchanged. The Dow and S&P just chopped around for the rest of the day, closing around unchanged; 10,537.69 (+0.12%) and 1,113.84 (-0.10%).
     
    But, enough on the equity markets, the loan market was where the action was. After being quiet yesterday, the secondary was on fire today. High Beta names were up around a point and everything else was up anywhere from a quarter to half a point. A lot of buyers jumped back into the pool today and were buying anything they could get their hands on. Being that dealer inventory has been pretty light, it’s no surprise that prices were quickly adjusted upward. Equities have been on a tear lately and it is about time the loan market caught up. The economic environment is very pro-credit right now and we have a strong technical landscape, so the loan market is set up to see a very nice rally for the foreseeable future. I think that we are going to see some people look to get out of high dollar paper and venture into the back alley’s of the loan market in search of paper that has some room to run. Price appreciation will be the game until the primary market picks up again. Stay your course, and buy, buy, buy if you got cash.
     
    On the Break
    • Insight Global Inc's $121 million, six-year term loan B broke for trading today. It is currently quoted in the 97.75 context. The loan was sold at 97. The loan was oversubscribed after pricing was lifted again to LIB+700 from LIB+600. The loan features a 2% Libor floor, along with 101 soft call protection. BNP Paribas leads the $141 million loan, which also includes a $20 million, five-year revolving credit facility. Proceeds will be used to finance Harvest Partners' acquisition of the company, refinance existing debt and pay transactions fees and expenses. Corporate family ratings of at least B2/B are expected.
    News
    • United Airlines parent UAL Corp today won unconditional EU regulatory approval for its $3.17 billion buy of Continental Airlines.
    • Universal Health Services Inc reported net income $65.6 million, or $.67 per diluted share, during the second quarter of 2010 compared to $80.9 million, or $.82 per diluted share, in the year earlier period. Net revenues increased 3% to $1.34 billion in 2Q10 compared to $1.30 billion in 2Q09.
    • Spectrum Brands sees improved sales and adjusted EBITDA over 3Q09, led by double-digit top line growth in shaving & grooming, home & garden division. Sees FY 2010 EBITDA of $430 million to $440 million.
    • Chemicals and coatings company Ferro Corp said it intended to sell senior notes worth $250 million in a bid to repay back all outstanding debt under its credit facility. Ferro said it will use part of the proceeds from the offering to purchase its 6.50 percent notes due 2013 worth $172.5 million. The company also said it was in talks with its lenders to enter into a new credit facility. "The remaining net proceeds from the offering, along with borrowings under new credit facility, are expected to be used to repay all borrowings outstanding under the company's existing credit facility," Ferro said in a statement. Ferro had also said it expected full year revenue growth of 15 to 20 percent.
    • The court-appointed examiner investigating Tribune Co's bankruptcy said he has found some evidence of dishonesty in the 2007 leveraged buyout of the company, court documents showed. The report, which investigates whether real estate developer Sam Zell's 2007 leveraged buyout of Tribune left the media company insolvent, is of particular interest to junior bondholders, who say their best hope of a recovery from the bankruptcy would lie in billions of dollars of senior claims being disallowed. Bankruptcy examiner Kenneth Klee, however, said he did not find any credible evidence against the large stockholders, lead banks, the financial advisers, as well as the Zell Group. Tribune Co.'s incremental loan declined 9 points today after a bankruptcy examiner said he found evidence of dishonesty in the company's 2007 LBO, while the rest of the company's bank loans traded higher. The incremental loan fell to 52.25-54.25 from the low 60s yesterday. Meanwhile, the company's TLB rose 1.5 points to 62.75-63.75 which, until yesterday, traded atop the incremental loan. The rest of the senior secured debt also moved higher. The TLX is currently 61.75-62.75, the delayed-draw term loan is 62.75-63.75 and the revolver is 65.75-67.25.
    • SuperValu Inc's loans moved higher today despite posting weaker-than-expected quarterly sales. The TLB-1 and TLB-2 both rose about 25bp amid a generally strong secondary market to 97-97.5 and 96.75-97.25, respectively. The company said net sales fell to $11.5 billion from $12.7 billion a year ago. Analysts had been expecting sales of $11.67 billion. Identical-store sales declined 7.2%, more than the 6.5% analysts had expected. The company also said CFO Pamela Knous will be leaving the company on July 30. Headquartered in Eden Prairie, Minn., Supervalu is one of the nation's largest food wholesalers.
     
    New Issue
    • Vertis Inc is asking for commitments by Monday on a $425 million senior secured first-lien first-out term loan. Price talk on the Credit Suisse-led facility is LIB+900 with a 97 OID and a 2% Libor floor. The call language is 104, 103.5, 102, 101 and par for the five years. The company has already syndicated a $150 million second-out term loan. Proceeds are to refinance existing debt.
    • Bank of America Merrill Lynch is launching Thursday afternoon a $3 billion, five-year term loan to refinance debt at CIT Group. The spread is to be determined. The loan will have a 1.75% Libor floor and an OID of 98. There is 102, 101 soft call protection. Proceeds are to refinance remaining first-lien debt. Existing lenders have the option to roll into the new term loan with the same economics, including the 98 OID. In addition, extending tranche 1 term loan lenders will also receive a 225bp extension fee, a 25bp premium to the existing exit fee. Extending tranche 2 term loan lenders will receive a 200bp extension fee. Corporate family ratings of B3/B+ and facility ratings of B1/BB are expected. Commitments will be due August 5 at noon. CIT announced today that $2.3 billion of its existing credit facility was prepaid during the second quarter and approximately $450 million just after quarter-end. And, $750 million was prepaid in the first quarter, leaving $4 billion of the original $7.5 billion first-lien debt outstanding.
    • Global Brass and Copper is launching Thursday morning a $330 million term loan via Goldman Sachs. The company will also raise a $150 million asset-based credit facility.
     
    Ratings
    • Standard & Poor's Ratings Services yesterday said SafeNet Inc's filing of an S-1 for an IPO of its common stock of up to $300 million has no effect on the company's ratings. Proceeds are expected to be used to reduce its outstanding debt, which, if successful, would lead to improved leverage, S&P said.
    • Standard & Poor's Ratings Services raised its corporate credit rating on West Point, Ga.-based cable overbuilder Knology Inc. to 'B+' from 'B'. The outlook is stable. At the same time, we raised the issue-level ratings on the company's senior secured debt to 'B+' (the same as the corporate credit rating) from 'B'. The recovery rating on the company's senior secured debt is unchanged at '4', which indicates average (30%-50%) in the event of default. Total debt outstanding as of March 31, 2010 was approximately $590 million. "The upgrade reflects our assessment that Knology's business risk profile has improved to weak from vulnerable given the company's ability to effectively handle competitive pressures during a protracted recession," said Standard & Poor's credit analyst Allyn Arden. Moreover, our upgrade reflects the company's improved credit protection measures and consistent generation of positive net free cash flow. Total debt to EBITDA declined to 4.1x as of March 31, 2010, from 4.5x in the year-ago period, primarily from growth in HSD and advanced video services. Additionally, increased economies of scale resulted in improved margins, enabling the company to produce net free cash flow of over $50 million during the 12 months ended March 31, 2010.
     
     
    High Yield
    • Vantage Drilling Co USD1bn 144A (w/rr) sr sec 1st lien Notes due 8/1/2015. NC2.5. B3/B-. Via JEF/DB joint books. 11.5% at 96.361. Yield 12.5%. Del 7/30 (T+4) 144A 676253 AA5.
    • Texas Industries Inc (TXI) USD600m 144A sr notes due 2020 (10y). NC5 (MWC T+50bp). Equity claw: 3y 35%. Expected ratings B3/B. Via BAML/GS/UBS/WFS joint books, Comerica, STI, Captl One, USB as co-managers. With reg rights. Investor call at 1pm today. Pricing first thing tomorrow or later today. UOP: fund the tender offer for its USD550m 7.25% sr notes due 2013 (USD1,020.63 total consideration, which includes a USD20 consent payment). BAML is dealer manager. Biz: supplier of heavy construction materials (cement, aggregates, concrete and consumer products) in TX and CA. HQ: Dallas, TX.
    • Price talk of 10.125% area is out on inVentiv Health Inc (VTIV) USD275m 144A sr notes due 2018 (8y). NC4. Caa1/B- (stable/stable). Via BAML/Citi/CS/DB joint books. w/rr. Books close at 10am tomorrow. Pricing tomorrow afternoon.
    • Price talk of 9.25% area is out on Texas Industries Inc (TXI) USD600m 144A sr notes due 2020 (10y). NC5 (MWC T+50bp). Equity claw: 3y 35%. Expected ratings B3/B. Via BAML/GS/UBS/WFS joint books, Comerica, STI, Captl One, USB as co- managers. With reg rights. Books close at 3:30pm today. Pricing this afternoon.
    • Price talk of 10%-10.25% is out on Aircastle Ltd (AYR) USD300m 144A (w/rr)/Reg S sr unsec notes due 2018 (8y). NC4. Ba3/BB+ (stable/stable). Citi sole books. Co-mgrs: BNP, CS, DVB, CA-CIB. Books close at 3.30pm today. Pricing this afternoon.
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