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Leverage Loan Market Commentary 07/29/2010

The loan market was mixed with a slight positive bias today but was very active. This morning we had bids due on the $136 million BWIC, earnings releases from Univision, HCA, Community Health, and Revlon, as well as two new issues breaking for trading (Cedar Fair and inVentive). It was also a very news heavy day and much of the trading revolved around those names. Only 42% of the names in the BWIC traded, which only accounted for $39 million as the seller received a lot of low ball bids. Earnings were mostly positive and helped push some names higher. Both new issues traded atop their OID’s on strong demand in the secondary. The LCDX 14 followed equities today and was up as high as 96 7/8 – 97 1/8 (+1/2) but pared the early market gains to move back to 96 3/8 -96 5/8 (Unch) where it stayed for the rest of the day. Loan market mutual funds saw inflows of close to $100 million, making it the fourth straight week of inflows. High yield mutual funds had inflows of $946 million, up from $700 million last week. With history as a guide, tomorrow should be rather light. Have a good night.
  • Europe CDS extend rally on upbeat Q2 results  
  • Buyout surge to test European leveraged loan market
  • German adj unemployment falls for 13th month     
  • Tribune report sealed; bankruptcy plan called dead
  • Cautious funds grab corp debt for yield à Party on    
  • U.S. unemployment claims fall, but still elevated à 457K v. 459K expected
  • Stocks slide on recovery doubts; euro gains       
  • Markets pare some losses, techs still drag       
  • Small business lending plan blocked in U.S. Senate
  • Sanofi's Genzyme bid expected in days
  • Rep. Frank-US govt should cut Fannie, Freddie ties  à Ahh, the Boogie Man. This should be interesting.
  • Avis Budget Group has tapped Citi and Morgan Stanley to provide the fully committed financing that will back the cash portion of its bid for Dollar Thrifty. Avis will complement the offer with available cash. In an unsolicited proposal, Avis has offered to pay $46.5 a share of Dollar Thrifty common stock consisting of $39.25 in cash. This will include proceeds of a pre-closing special dividend to be paid by Dollar Thrifty and 0.6543 shares of Avis Budget stock currently valued at $7.25. Dollar Thrifty and Hertz Global Holdings entered into a definitive merger agreement. Dollar Thrifty has scheduled a shareholder meeting to vote on the Hertz acquisition on August 13. Dollar Thrifty has said its board of directors will review and consider the Avis transaction.
  • Nuveen Investments' first-lien term loan advanced more than three points today after the company said it was acquiring the long-term asset business of U.S. Bancorp's FAF Advisors. The loan rose from 85 to 88.25-89 today. The transaction is expected to have a net deleveraging effect on Nuveen. Standard & Poor's said the company's B- rating is not expected to be affected by the acquisition. "The transaction is being conservatively financed with on-balance-sheet cash and common stock, whereby U.S. Bancorp will have a 9.5% stake in Nuveen," S&P said. "As a result, debt leverage, which has been extremely high at Nuveen and has been a major factor in the ratings, should decline slightly." Chicago-based Nuveen is a provider of diversified investment services to institutional and high-net worth investors.
  • Light primary CLO issuance in 2010 (only three deals have publicly come to market in the U.S.) has been insufficient to offset the roll-off of legacy CLO, according to Fitch's latest U.S. Leveraged Finance Quarterly. As a result, the outstanding balance of U.S. CLOs is on the decline. The purchasing power of legacy CLOs is further diminished as issuers exit their reinvestment period and begin to amortize. The declining balance of U.S. CLOs will accelerate the longer primary CLO issuance remains dormant, Fitch says. CLOs have experienced relatively stable performance over the last quarter with U.S. high yield defaults running at less than 1% for the year and recoveries rebounding from the lows observed in the first half of 2009. Portfolio credit quality has improved on a weighted average basis, returning to a strong 'B/B+' profile from 'B/B-' earlier in 2010. Additionally, Fitch analysts say that issuers are also experiencing a reduction in assets rated 'CCC' and below, which has had positive effects on overcollateralization (NYSE:OC) test cushions as a result of smaller excess 'CCC' assets. Relatively stable secondary market prices have also contributed to improved OC coverage due to the dampened effect of the discount securities threshold and excess 'CCC' haircuts.  
  • LNR Property's loan rose about a point to 96-98 today on news the company's equity sponsors agreed to make a $442 million equity contribution and pay down about half of the company's first-lien loan. The transaction will cure a technical default and put the company back within its covenants. Goldman Sachs and Bank of America Merrill Lynch were leading the proposed $445 million refinancing loan.
  • A little less than half of the names in the $136 million cash loan BWIC traded today, totaling about 29 percent of the dollar amount. Bids for the loans that did not trade were below the seller's desired selling price.
  • Las Vegas Sands TLB bounced around today as expectations differed among investors as to the terms of the company's amendment to its $5 billion credit facility, which is expected to launch tomorrow. The loan opened the day at 93.25-93.5 before dipping to 92.5-93. It has since recovered, coming back to 93-93.5. Some investors anticipate the company will offer straight yield, or a price bump, in exchange for extending the maturity. Some investors anticipate the company will offer straight yield, or a price bump, in exchange for extending the maturity. Others take the view that Las Vegas Sands will opt for a smaller price bump combined with paying down 15% to 20% of the loan with cash on hand
  • An examiner's report that found dishonesty in Tribune Co's leveraged buyout will remain under wraps until at least next week, a bankruptcy judge ruled on Thursday, as creditors declared the company's reorganization dead. Judge Kevin Carey of the U.S. Bankruptcy Court in Delaware also said he would consider extending the Aug. 6 deadline to vote on the company's reorganization. Such a ruling would come at a hearing he scheduled for Tuesday. The examiner, UCLA Law School professor Kenneth Klee, released a 20-page summary on Monday and said the court needed to resolve claims of confidentiality before unsealing the full 1,100-page report. The report concluded Tribune did not act forthrightly in getting an independent opinion about the company's solvency. The report also found a court was somewhat likely to find part of the $8.2 billion leveraged buyout that put developer Sam Zell in control of the Chicago Tribune and Los Angeles Times owner constituted intentional fraudulent transfers.
  • Community Health Systems' strip is relatively unchanged at 94.75-95.25 this morning after the company posted a rise in profitability, sales and EBITDA. The company said operating revenue rose 5.1% in 2Q10 to $3.2 billion. Adjusted EBITDA in the quarter was $443.1 million, up from $415.6 million in the year-earlier period. CHS, headquartered in Brentwood, Tenn., is a provider of general hospital healthcare services.
  • Univision Communications' loan is up more than a point to 88-88.5 today after the company reported a 23% rise in 2Q10 revenue and a 20% rise in 2Q10 OIBDA. The company said net revenue rose to $639.8 million in the quarter from $519.5 million last year. Adjusted operating income before depreciation and amortization rose to $272 million from $226.6 million a year ago. The company said that during the quarter, the 2010 FIFA World Cup contributed between $73.6 million and $74.8 million in incremental net revenue and between $3.9 million and $4.9 million in OIBDA.
  • Revlon Inc today said 2Q10 net sales were $327.7 million compared to $321.8 million in the year earlier period. Operating income was $47.3 million compared to $26.6 million in 2Q09 and net income was $16.4 million, or $0.31 per diluted share, compared to $0.2 million, or nil per diluted share.
  • Goodyear said 2Q10 sales rose 15% to $4.5 billion. Net income was $28 million, or 11 cents per share, compared with a loss of $221 million, or 92 cents per share, in 2Q09.
  • The McClatchy Co today reported 2Q10 net income of $7.3 million, or 9 cents per share. Adjusted earnings, excluding items, were $8.6 million, or 10 cents per share.
  • Dana Holding Corp today reported 2Q10 net income of $9 million, compared to break-even net income one year ago. Second-quarter adjusted EBITDA was $154 million, a substantial improvement over the $94 million reported 2Q09.
  • Community Health Systems said operating revenue rose 5.1% in 2Q10 to $3.2 billion. Adjusted EBITDA in the quarter was $443.1 million, up from $415.6 million in the year-earlier period..
  • HCA Inc's loans gained between 12.5bp and 25bp this morning on quarterly earnings before coming back to unchanged with the softening in equities. The TLB-1 is currently quoted at 96.75-97, while the TLB-2 is quoted at 97.5-97.75. The hospital operator today said 2Q10 net income rose 3.4% to $293 million from $282 million. Quarterly revenue rose nearly 4% to $7.76 billion and adjusted EBITDA increased 6.5% to $1.49 billion, compared to $1.399 billion in 2Q09.
On the Break
  • Universal Health Services' new TLB broke for trading late yesterday, currently quoted 99.75-100.125, up a half of a point from yesterday. The loan is priced at LIB+400 with a 98.5 OID and a 1.5% Libor floor. The TLB offers a 200bp ticking fee until the time of close in October. the issuer upsized the size of both its term loan A and term loan B by $50 million apiece. The size of the TLA and TLB now stand at $1.05 billion and $1.6 billion, respectively.
  • inVentiv Health's new $525 million, six-year term loan is currently quoted 99.75-100.25 after breaking late yesterday in the 99.25-100.25 range. The issuer previously cut pricing on the loan to LIB+475 from LIB+500, while the OID was tightened to 98.5 from 98 after netting an oversubscription. The loan benefits from a 1.75% Libor floor. Citi leads the loan, which backs the company's $1.1 billion LBO by THL Partners. The financing also includes a $75 million, five-year revolving credit. The corporate family rating is B2, while the credit facility rating is Ba3.
  • Cedar Fair's new $1.275 billion term loan B has run up to 100.25-100.625 since breaking earlier in the day closer to par. The loan was previously upsized by $25 million and the concurrent revolver was downsized by the same amount to $275 million. In addition, pricing on the TLB was flexed down to LIB+400 from LIB+425. A 1.5% Libor floor and a 99 OID remained unchanged. JP Morgan leads the deal. With the company's issuance of bonds, senior secured leverage will drop to 3.6 times from 4.7 times. The corporate family rating is Ba3/B+, while the facility rating is Ba2/BB-.
New Issue
  • A total of 29 banks piled onto Universal Health Services' $800 million, five-year revolving credit facility and slightly-increased $1.05 billion, five-year term loan A. The 29 include lead arrangers JP Morgan, which holds $165 million, and Deutsche Bank Alex Brown and Bank of America Merrill Lynch, which hold $140 million each. Bank of Tokyo-Mitsubishi UFJ, Credit Agricole, RBS and SunTrust joined at the top tier level with $125 million each.
  • AMN Healthcare Services announced it expects to refinance its existing bank debt in connection with its acquisition of Medfinders. AMN expects to amend and extend its outstanding $107 million term loan B and increase the facility by an estimated $68 million to $175 million and issue a $50 million second-lien term loan. In addition, AMN expects to amend and extend its existing revolving credit facility, which is expected to be undrawn at closing. The company also expects to pay off Medfinders' existing debt facilities totaling approximately $132 million. The enterprise value of the transaction, including the $132 million of Medfinder debt, is $220 million. The transaction, which is expected to be accretive to full year earnings in 2011, is expected to close in the third quarter of 2010. It is subject to customary closing conditions, regulatory approvals and receipt of debt financing.
  • Price talk on Airvana's $330 million term loan is LIB+700 with a 2% Libor floor and a 97-98 OID. Jefferies, Macquarie and SG launched the deal this morning. Proceeds are to pay a dividend to the company's sponsors. SAC Capital and GSO Capital Partners and ZelnickMedia are the sponsors. The company was bought out in December 2009 for about $530 million. Airvana is a provider of mobile-broadband-network infrastructure products.
  • Credit Suisse is launching Monday a $205 million bank loan backing Strategic Partners' LBO by Bank of America Merrill Lynch Partners. The deal includes a $30 million revolving credit facility and a $175 million term loan. Strategic Partners provides consulting, coaching, and training services to federal agencies and Corporates.
  • Price talk on Global Brass and Copper's $330 million term loan is LIB+750 with a 2% Libor floor and a 97 OID. The term loan also has 105, 103 and 101 call protection. Proceeds are to pay a dividend and to refinance existing debt. Commitments are due August 10. Goldman Sachs launched the deal today. The company is also raising a $150 million asset-based revolving credit facility. The company was created by KPS Capital Partners in 2007 to acquire the world-wide metal business of Olin Corp. Global Brass and Copper is a manufacturer and distributor of specialized copper and brass products.   
  • Blount International will bump up pricing by 50bp to LIB+400 to extend $275 million of its term loan B to August 2016. In addition, the facility will now have 101 soft call protection for the first year and will amortize at 1% per year. A 1.5% Libor floor and 99 OID on the TLB remain unchanged. the issuer will replace its $75 million delayed-draw term loan with a $75 million, five-year term loan A. The TLA will be priced at LIB+350 and will amortize at 10% per year, with the balance due at maturity. GE Capital leads the amend/extend. Blount is a manufacturer of saw chain and related accessories.
  • Price talk is LIB+475-500 on CIT Group's $3 billion, five-year term loan. The deal features a 1.75% Libor floor and a 98 OID. There is also 102, 101 soft call protection. Commitments will be due August 3 by 5:00 p.m. Bank of America Merrill Lynch launched the deal this afternoon. 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.
  • Price talk on MultiPlan's $1.3 billion, seven-year term loan B is LIB+450-475 with a 1.75% Libor floor and a 98-98.5 OID. Senior secured and total leverage are 3.9 times and 5.9 times, respectively. Barclays, Credit Suisse and Bank of America Merrill Lynch launched the deal this afternoon. It includes a $75 million, five-year revolving credit facility. Proceeds are to back the $3.1 billion LBO of the company by BC Partners and Silver Lake from Carlyle Group and Welsh, Carson, Anderson & Stowe.
High Yield
  • Price talk of 7.75%-7.875% is out on Tenneco Inc (NYSE:TEN) USD225m 144A sr notes due 2018 (8y). NC4. Ratings TBD (B2/B existing). Via DB/Citi/MS/RBS/WFS joint books, + co-managers. With reg rights. Books close at 1:30pm today. Pricing this afternoon.
  • Price talk of 6.75%-7% is out on Range Resources Corp (NYSE:RRC) USD350m SEC rergistered sr sub notes due 2020 (10y). NC5 (MWC T+50bp). Equity claw: 3y 35%. Ba3/BB (stable/stable). Via JPM/BAML/WFS joint books, Barc, CS, DB, RBC, BMO, Citi, CA, BNPP, STI, BBVA, Key, Comerica, MUS, CapOne, Scotia, SocGen, Natixis, USB as co-managers. Off the shelf. Books close at 2pm today. Pricing this afternoon.