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  • Syndicated Loan Market Commentary 08/10/10 0 comments
    Aug 10, 2010 6:46 PM
    Overnight weak economic data from China and England weighted on the markets. China showed more signs of slowing growth as July imports came in weaker than expected, pushing the Shanghai Composite index down close to 3%. Also, July house prices rose less than expected at 10.3% y/y, the slowest pace since January. In England house prices fell as well and retail sales growth slowed abruptly. The pace of economic growth is slowing globally and investors are getting increasingly nervous. U.S. equities opened lower and stayed low up until the Fed’s rate decision which, to no surprise, remained unchanged and they kept the “extended period” language. But, what got the market excited was the announcement that they will “keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.” Equities pared most of their losses and the S&P and Dow finished at 1,121.06 (+0.6%) and 10,644.25 (+0.51%) respectively.
     
    The loan market started heavy and high beta names, that typically track equities, were quoted an eighth to a quarter lower. The LCDX was out of the gate down a quarter to 96 7/8 – 97 1/8. Most accounts have enough cash and those that need to shore up some have been selling higher dollar, lower coupon paper. There has not been much of a new issue calendar to get involved with so a lot of that money has been put to work by buying strong credits with positive earning that could benefit from some price appreciation as market technical’s push loan bids higher. The high yield primary is on fire. Just today Pinnacle, SPX, DirecTV, and Chemtura issued bonds to repay/refinance their bank debt. Investors crave yield and they are flocking to the high yield bond market. Issuers will continue to bring deals to market since there is an excess demand for the stuff. We will also continue to see issuers refinance out of their bank debt since high yield bonds are much less restrictive, allowing them more flexibility to navigate through this stagnating economy. In my mind this is a red flag for further trouble down the road, but for right now, the coast is clear so it pays to be involved.
     
    After the Fed announcement, loans noticed a bit of a pop, and the LCDX 14 had a brief rally. Pabst Brewing Company, the makers of one of my all time favorite beers, PBR, broke for trading above its OID and was quoted in the 98.5 context. So, if anyone wants to go out and celebrate this occasion, let me know, beers on me. Also, EnergySolutions $560 million term loan broke for trading as well and they too, traded atop their OID. In all, the positive trend in the loan market continues. On the day, loans were mostly positive moving up around an eighth of a point, heledp slightly by FDC’s earnings, which were better than expected. The same themes we have seen will continue to play out. So, keep your eyes on the high yield market as that is where the action is. Have a good night.
     
     
    Headlines
    • China trade surplus soars as domestic demand flags
    • Weak UK data highlight BoE dilemma, pound falls  
    • Spain PM cautious on growth, eyes budget spending
    • Oil slips as China imports slow, dollar rises
    • Fed takes fresh steps to support fragile recovery
    • U.S. House of Representatives passes aid bill    
    • U.S. stocks pare losses, bonds rise after Fed    
    • US productivity weakens in second quarter        
    • Economists cut U.S. forecasts, see more Fed action
     
    News
    • Pinnacle Foods, Goodyear Tire & Rubber, SPX Corp and Regal Entertainment each announced senior note offerings this morning, showing the continued strength of the high yield new issue market.
    • Innerwear maker Hanesbrands Inc said it agreed to acquire privately held GearCo Inc, known as Gear For Sports, a seller of branded apparel in collegiate bookstores, for about $55 million in cash. Hanesbrands will also assume $170 million of debt, which it expects to retire. The deal for Gear For Sports, which sells apparel under several brands including Hanesbrands' Champion label, will add about 20 cents to Hanesbrands' earnings per share in the first year and 30 cents per share in the second year after closing, it said. Gear For Sports reported sales of $225 million in its fiscal 2010 year ended in June.
    • Visteon Corp late reported a 2Q net loss of $201 million, which includes a $122 million charge for certain post-petition interest expenses, compared to a net loss of $112 million in 2Q09. Product sales totaled $1.89 billion, up from $1.48 billion a year earlier, and free cash flow increased by $85 million to $92 million. The company plans to move forward with its confirmation hearing on August 31.
    • Standard & Poor's Rating Services said today it has assigned its 'BBB-' rating to International Lease Finance Corp's (ILFC) proposed $2.5 billion secured notes. ILFC has indicated that it will use the proceeds from the notes to repay secured borrowings from an affiliate of parent American International Group Inc.
    • United Airlines says July consolidated passenger revenue per available seat mile is estimated to have increased 22.0%
    • First Data Corp has received the requisite approval on its amendment ahead of today's 5:00 p.m. commitment deadline. Credit Suisse launched Aug. 4 an amendment that will allow First Data Corp to issue additional secured debt to pay down its term loans. The amendment allows for a basket of $3.5 billion in junior debt to repay senior or senior subordinated debt. It also gives First Data the ability to extend its existing revolving credit facility and term loans in the future. Also, under the amendment, the issuer's $1.5 billion incremental facility will be reduced to $1 billion. Consenting lenders will receive a 10bp fee.
    • Fairmont Hotels & Resorts Inc is seeking an amendment and extension on its about $1 billion multi-currency deal led by Citi, sources said. The hotel chain is asking to extend its facility by three years to August 2013. In return, lenders get a 100bp fee for rolling over $100 million of their existing commitments, 87.5bp for $75 million, or 75bp for less than $75 million. And for incremental commitment amount, lenders get additional 150bp. In addition, the company plans to repay the Singapore term loan of its facility with proceeds of the sale of Raffles 1886, and non-Singapore TL will be repaid with excess proceeds.
    • Credit Suisse launched today an amend-to-extend for Smart & Final. The issuer is looking to extend its $386 million first-lien term loan by two years to May 2016 at a 100bp spread bump of LIB+400. The extended tranche would have 50bp MFN protection. Smart & Final is also looking to extend its second-lien loan by two years to November 2016. The existing piece has a PIK feature. On the extended tranche, the PIK option would be eliminated and the coupon would be LIB+875 in cash, with a step-up to LIB+900 after two years. The extended second-lien would also have 50bp MFN protection.
    ·         The blocking group opposing Las Vegas Sands' proposed amendment has garnered votes that take up around 49.99% of the total facility (or 63% of the term loan and delayed draw term loan tranches), according to an email sent out to investors by the blocking group. The outcome of Las Vegas Sands' proposed amendment is still too close to call ahead of today's 5:00 p.m. deadline, with rumors of a blocking group, a counter-proposal and disagreement over how many votes are already in the book muddying the proceedings. Unhappy with the 75bp price bump, a lender group was said to have already sent a counter-proposal back to the company. That proposal, however, will not be considered unless the amendment, in its current form, fails to get approved. However, another investor was told the company would not consider a counter-proposal, instead preferring to walk away altogether.
     
    On the Break
    ·         Pabst Brewing Co's $100 million term loan broke for trading in the 98.5 context. Pricing on the loan flexed up to LIB+500 from LIB+475 and the OID widened to 98 from 99. The loan benefits from a 1.5% Libor floor. GE Capital leads a $100 million loan backing the company's buyout by food investor C. Dean Metropoulos. The five-year loan includes a $10 million revolving credit facility and a $90 million term loan. The purchase price is said to be $250 million, according to published reports.
    ·         EnergySolutions' new $560 million term loan B broke for trading this afternoon in the 98-98.5 range. The OID was previously widened to 97.5 from 98-98.5. The six-year loan is priced at LIB+450 with a 1.75% Libor floor. It benefits from 101 soft call protection. JP Morgan, Credit Suisse and Citi launched the deal July 15. Proceeds are to refinance the company's existing TLB and synthetic LC facility.
     
     
    Earnings
    • First Data's loans are slightly better this morning after the company posted a rise in 2Q10 revenue in 2Q10. The TLB-2 rose to 86.625-87.25, up from 86.25-86.75 yesterday. Today, the company posted consolidated revenue of $2.6 billion in the quarter, up 18% from the year-earlier period. Adjusted revenue increased 4% to $1.6 billion. Adjusted EBITDA in the quarter was $513 million, down from $589 million a year ago as higher compensation accruals, a $29 million contract termination fee and a $17 million write-off of receivables negatively affected the number. The company generated $594 million in operating cash flow in the quarter.
     
    New Issue
    • Bank of America Merrill Lynch, Citi, Wells Fargo, Barclays and Goldman Sachs are launching this morning a $575 million exit loan for Chemtura Corp. The deal includes a $275 million, five-year asset-based revolving credit facility and a $300 million, six-year term loan. Senior secured leverage is 0.9 times, while total leverage is 2.3 times.
    • Pinnacle Foods Corp is holding a lenders call today at 11:30 a.m. following its earnings call to put in place a $442.3 million senior secured term loan D to refinance its term loan C. The TLD carries price talk of LIB+425-450 with a 1.75% Libor floor and no OID. Senior secured and total leverage are 3.4 times and 5.9 times, respectively. Commitments are due tomorrow at 5:00 p.m. The facility rating is Ba3/B, while the corporate family rating is B2/B. Barclays, Bank of America Merrill Lynch and Credit Suisse are the leads.
    Ratings
    • Standard & Poor's Ratings Services said today that its has assigned issue-level and recovery ratings to Mountain Lakes, N.J.-based Pinnacle Foods Group LLC's proposed $442 million senior secured Term loan D due 2014 and $400 million senior unsecured notes due 2017. The issue-level rating on the proposed secured Term Loan D is 'B+' (one notch higher than the corporate credit rating) with a recovery rating of '2', indicating our expectation for substantial (70% to 90%) recovery in the event of a payment default. The issue-level rating on the proposed senior unsecured notes is 'CCC+' (two notches lower than the corporate credit rating) with a recovery of '6', indicating our expectation for negligible (0% to 10%) recovery in the event of a payment default. At the same time, we raised the issue-level rating on the company's existing senior secured debt (including a $150 million revolving credit facility due 2013 and $1.25 billion Term loan B due 2014 with an outstanding balance of about $1.2 billion as of June 30, 2010) to 'B+' from 'B' (one notch higher than the corporate credit rating). We revised the recovery rating to '2', indicating our expectation for substantial (70% to 90%) recovery in the event of a payment default, from '3'.
     
    High Yield
    • Pinnacle Foods Finance LLC/Corp USD400m 144A sr notes due 2017 (7y). NC3 (1st call at par plus 3/4 coupon). Equity claw: 3y 35%. Ratings TBD. Via Barc/BAML/CS joint books. With reg rights. Earnings call at 10am today. Investor call at 11.30am today. Pricing this afternoon. UOP: along with USD442.3m sr sec term loan D to refinance its term loan C due 2014. Biz: manufactures and markets branded food pdts. HQ: Mountain Lakes, NJ.
    • The Goodyear Tire & Rubber Co "GT" USD750m SEC registered sr notes due 08/15/20 (10y). NC5 (MWC T+50bp). Equity claw: 3y 35%. Ratings TBD (existing ratings B1/B+/B). Via DB/Barc/MS joint books, BNPP, HSBC, Natixis, WFS as co- managers. Off the shelf. Investor call at 10am today. Pricing this afternoon. UOP: along with cash and revolver to redeem USD325 million in principal amount of 8.625% sr notes due 2011 (at 104.313) and approx USD388m 7.857% notes due 2011 (MWC T+35bp); and for GCP, which may include the repayment of other debt. Biz: tire manufacturer. HQ: Akron, OH.
    • Regal Entertainment Group Price talk of 9.25% area yield USD275m SEC registered sr notes due 2018 (8y). NC4. Via CS/Barc/BAML/DB joint books. Off the shelf. Investor call 11am this morning. Books closed at 1pm today. Pricing this afternoon. UOP: repay its 6.25% sr cvt sr notes due 2011 and 9.375% sr sub notes due 2012. Biz: motion picture exhibitor in the world. It is headquartered in Knoxville, TN.
    • Building Materials Corp of America increased to USD450m (from USD350m) 144A sr notes due 08/15/18 (8y). NC4. B1/BB+ (stable/stable). Via DB/Citi/BAML joint books. No reg rights. 6.875% at 98.493, yield 7.125%. +477bp vs 4% 08/15/18. 144A.
    • SPX Corp (NYSE:SPW) USD350m 144A sr unsec notes due 2017 (7y). NC life. Existing ratings Ba2/BB. Via JPM/BAML/DB joint books, Citi/Scotia as sr co- managers, MUS, Commerz as co-managers. With contingent reg rights. Investor call at 11am today. Pricing this afternoon. UOP: repay bank debt terminate swaps. Biz: global manufacturer and provider of infrastructure products and services. HQ: Charlotte, NC.
    • DirecTV Holdings LLC/DirecTV Financing Co "DTV" Baa2/BBB-/BBB- (s/s/s) USD benchmark SEC registered 5.5s/10.5s/30s 3-part sr notes. Citi/JPM (active)/CS/GS (passive) joint books. CoC put at 101. Optional redemption 3mos prior to maturity at par on 10.5y and 30y tranches. UOP: gcp, which may include the repayment of all of the outstanding borrowings under the Term Loan A and B portions of sr sec credit facility, a distribution to Parent for its share repurchase plan and other corporate purposes.
    • Chemtura Corp USD450m 144A Reg S sr notes due 2018 (8y) NC4 (MWC T+50bp). Equity Claw: 3y 35% Ratings TBD. Via Citi/BAM/Barc/WFS/GS joint books. W/rr. Roadshow starts today. Pricing late ths week. UOP: Repay and replace existing DIP facility, repay certain other indebtedness, and to make certain payments, including fees and expenses. The proceeds will be placed in escrow pending court confirmation of the plan. Biz: global manufacturer and marketer of specialty chemicals, agrochemicals, and pool, spa and home care products. HQ: Philadelphia, PA.
    • Price talk was in 9.25% area Regal Entertainment Group (NYSE:RGC) USD275m SEC registered sr notes due 2018 (8y). NC4 (MWC T+50bp). Equity claw: 3y 35%. B3/-- (stable/--). Via CS/Barc/BAML/DB joint books. Books close at 1pm today. Pricing Off the shelf. 9.125% at 100.00, yield 9.125%. +676bp vs 4% due 8/15/2018. 144A CUSIP: 758766 AE9.
    • Price talk of 7.875% area is out on Targa Resources LP (NYSE:NGLS) USD250m 144A sr notes due 2018 (8y). NC4 (MWC T+50bp). Equity claw: 3y 35%. (Expected rating B2)/B+ (--/stable). Via BAML/DB/JPM/RBS/WFS joint books, Barc/UBS/RBS co-leads, BNPP, BBVA, Comerica, ING, USB as co- managers. Books close at 2pm today. Pricing this afternoon.
    • Price talk of 6.875%-7% is out on SPX Corp USD350m 144A sr unsec notes due 2017 (7y). NC life. (Existing rating Ba2)/BB+ (--/stable). Via JPM/BAML/DB joint books, Citi/Scotia as sr co- managers, MUS, Commerz as co-managers. With contingent reg rights. Books close 2.30pm. Pricing 08/10 afternoon.
    • Price talk of 8.125%-8.25% is out on Pinnacle Foods Finance LLC/Corp USD400m 144A sr notes due 2017 (7y). NC3 (1st call at par plus 3/4 coupon). Equity claw: 3y 35%. B3/CCC+ (stable/--). Via Barc/BAML/CS joint books. Books close at 3pm. Pricing this afternoon.
    • Price talk of 8.25% area yield (inclusive of a 0-1 point OID) is out on the new issue for The Goodyear Tire & Rubber Co USD750m SEC registered sr notes due 08/15/20 (10y). NC5 (MWC T+50bp). Equity claw: 3y 35%. (existing B1)/B+ (-- /negative). Via DB/Barc/MS joint books, BNPP, HSBC, Natixis, WFS as co- managers. Books close 3.30 pm. Pricing 08/10 afternoon.
    • Price talk of 11.25%-11.5% is out on Gentiva Health Services Inc (NASDAQ:GTIV) USD305m sr notes 2018 (8y). NC4. Equity claw: 3y 35%. B2/B- (stable/stable). Via Barc/BAML/STI joint books. With reg rights. Books close end of day Wednesday. Pricing Thursday morning.
    • SPX Corp (SPW) increased to USD600m (from USD350m) 144A sr unsec notes due 09/01/17 (7y). NC life (MWC T+50bp). Ba2/BB+ (stable/stable). Via JPM/BAML/DB joint books, Citi/Scotia as sr co- managers, MUS, Commerz as co-managers. With contingent reg rights. 6.875% at 100. +472bp vs 2.375% 07/31/17. Del 08/16 (T+4). 144A CUSIP: 784635AM6.
    • Targa Resources LP (NGLS) USD250m 144A sr notes due 10/15/2018 (8y). NC4 (MWC T+50bp). B1/B+ (stable/stable). Via BAML/DB/JPM/RBS/WFS joint books, Barc/UBS/RBS co-leads, BNPP, BBVA, Comerica, ING, USB as co- managers. 7.875% at 100.00, yield 7.875%. +557bp vs 4% 8/15/2018. Del 8/13 (T+3). 144A CUSIP: 87612B AE2.
     
    What to Watch Tomorrow
    • U.S. international trade, June (Census Bureau, Bureau of Economic
    Affairs) 8:30 a.m. ET
    • Metro home prices/State resales, Q2 (National Association of Realtors)
    10 a.m. ET
    • Treasury to auction $24 billion 10-year notes
    • Treasury to auction $25 billion 56-day cash management bills
     
    16th Annual Thomson Reuters LPC Loan Conference
    Wednesday September 22, 2010
    Marriott Marquis, New York City
     
    Now in its 16th year, the Thomson Reuters LPC Loan Conference has become one of the industry's premiere annual events. Join investors, lenders, financial sponsors and treasurers as they discuss the outlook for a continually evolving loan market.
     
    Click Here to view our detailed agenda and to access registration information.
     
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