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Loan Market Commentary 03/23/2010

Greece was making noise overnight as their finance minister said that their budget deficit cutting plans are still on track despite a weaker than expected economy in 2010. Greek debt traded better and CDS was down 3 bps. European equities were largely unaffected. In the US, ICSC chain store sales and housing numbers showed modest improvement and boosted investor confidence that the economy is still ‘recovering’. US equities hit 18-month highs today, but these moves were on very low volumes.
 
There was not a lot going in the loan market today. Some people are out in Phoenix for the Barclay’s HY and Loan conference so that had an impact on volumes. The direction in the market was positive, with some names firming anywhere from an eighth to a quarter, but for the most part the market was widely unchanged. Healthcare names, especially Hospitals, continue to rise since the healthcare bill is believed to boost the number of patients seen by doctors as 32 million uninsured Americans will now have health coverage. Also, being that all Americans have some form of coverage, delinquent accounts will be eliminated going forward since care will not be provide to those who cannot afford it, making hospitals a more profitable business. A $145mm BWIC hit the market today with bids due tomorrow by 2pm. The BWIC contained 41 tranches of debt for mostly high dollar names. Outside of that, most people were on the fence waiting for new issues. Bass Pro Shop announced that their new TL will have an OID of 99 and Lyondell cut their term loan in half to $500 million and eliminated covenants. I am curious to see how well that cov-lite issue is subscribed; anyone remember when cov-lite was a four-letter word? The LCDX 13 started the day up an eighth and continued to firm, finishing up 3/8’s to 104 ¼ - 104 ½. So, the silent but firm trend continues.
 
News
 
  • Time Warner Inc, Lions Gate Entertainment Corp and billionaire Len Blavatnik's Access Industries put up rival bids of $1.2 billion to $1.5 billion for studio Metro-Goldwyn-Mayer. Time Warner was said to put in the highest of the three bids. MGM said it expects to work with lenders to extend the forbearance period on its bank debt, which ends March 31. The company is expecting to seek a forbearance agreement for its revolving line of credit, for which a payment is due April 8.
  • Aircraft components maker Triumph Group Inc agreed to acquire Vought Aircraft Industries from D.C.-based private equity giant Carlyle Group in a $1.44 billion cash-and-stock deal, which includes the retirement of Vought debt, sent its shares up as much as 14 percent to a new year high and pushed their term loan above par. The company will also use $189 million of borrowings under its existing credit facilities, $292 million of existing cash and $461 million in issuance of common stock. Pro forma for the transaction, total leverage will be 3.2 times pro forma adjusted EBITDA.
  • Hawker Beechcraft's TLB soared 10-12 points over the last week and a half as the company is thought to be buying back bank debt,.
 
New Issue
 
  • Price talk on Bass Pro Shops' $400 million term loan B is LIB+375 with a 1.5% Libor floor and will have an OID of 99. Pricing on the $300 million asset-based revolving credit facility is LIB+300. Proceeds are for a refinancing. JP Morgan leads the deal.
  • Lyondell Chemical is downsizing its $1 billion, six-year term loan B to a $500 million covenant-lite facility and is increasing its senior secured first-lien notes to $2.75 billion from $2.25 billion. The reduced TLB will be offered at LIB+425, along with a 99 OID and a 2% Libor floor. The TLB will no longer have financial covenants (maximum first-lien leverage ratio and minimum interest coverage ratio). Commitments are due Wednesday at 4:00 p.m. The $2.75 billion notes will consist of a $2.25 billion USD tranche talked at 8%-8.25% and a 370 million euro tranche ($500 million equivalent) talked at 8.125%-8.375%.
  • Stratus Technologies is roadshowing between today and next Wednesday $215 million in senior secured notes due 2015. The notes are non-callable for three years and expected ratings are B3/B-. Jefferies leads the deal, which will be used to repay bank debt.
  • Verizon Communications is offering three ticket levels on its $5 billion, three-year revolving credit facility, sources said. Banks are invited to join with $450 million tickets for an upfront fee of 22bp, and those joining with $300 million and $100 million tickets get 20bp and 15bp, respectively. JP Morgan and Citi are lead arrangers. Pricing on last year's deal, based on the company's one-year CDS, is capped at a floor of 75bp and a ceiling of 200bp. The commitment fee was also 20bp.
  • Baker Hughes Inc has increased its $1 billion, three-year senior unsecured revolving credit facility to $1.2 billion after 21 banks piled onto the facility. Among the 21 are lead arrangers JP Morgan, Citi and Bank of America Merrill Lynch.
  • Industrial cleaning services company Aquilex has tightened the OID on its $185 million, six-year term loan to 99 from 98.5, sources said. The company also has reduced the Libor floor to 1.5% from 2%. The spread on the term loan is LIB+400 and proceeds are to refinance debt.
 
Amendment News
  • TPC Group is holding a lenders meeting Thursday via Deutsche Bank to extend up to $280 million of its existing term loan B to January 2016 from June 2013,according to a lender presentation filed with the SEC. The company is offering a LIB+350 spread (100bp increase) along with a 1.5% Libor floor on the extended portion of the term loan. Pricing on the non-extended tranche will be LIB+300 (50bp increase) with no Libor floor. The term loan amortizes at 1% per year. The company said that assuming a 63% extension, $175 million of the term loan would be extended. A 10bp amendment fee will be paid to all consenting lenders. The company is also looking to raise a new $150 million, four-year asset-based revolving credit facility, with a $25 million accordion feature. Pricing on the ABL is based on a performance-based grid and ranges from LIB+300 to LIB+375, with the commitment fee ranging from 50bp to 75bp. Commitments on the TL extension are due March 30, and April 6 on the new ABL revolver.
  • Aramark amended and extended $1 billion of its term loan B to 2016. The amendment was completed after the issuer agreed to a 5bp consent fee.
  • UK chemicals giant Ineos Group's proposal to amend its 6.8 billion euros debt to allow a 1 billion euros loan and bond refinancing has run into opposition from investors after meetings in London and New York on Monday and Tuesday. Barclays and JP Morgan are acting as co-ordinators and bookrunners for the loan amendment that will allow Ineos to issue 1 billion euros of senior secured high-yield bonds with a maturity of at least five years. Private investors are being offered a loan alternative. Existing lenders are also being asked to waive a commitment made by Ineos in last year's loan amendment to repay 700 million euros of debt by the end of 2011 as well as extend the maturity of a revolving credit by one year to December 2013 and reset loan covenants to provide 20 percent headroom. The changes, which need approval from 90 percent of Ineos' lenders and 50.1 percent of bondholders, are proving controversial as Ineos will be refinancing senior debt with high-yield bonds rather than repaying debt and deleveraging the company as pledged.
Policy Updates
 
  • Investors in some structured credit deals using derivatives are seen as likely to unwind them after new U.S. accounting rules are introduced that will require the derivatives to be recorded at market value. New U.S. accounting rules will require that more structured credit deals using derivatives record the contracts at their market value, which investors say may result in some unwinding of investments to avoid volatility and further markdowns. The Financial Accounting Standards Board said earlier this month that it will amend accounting rules for securitizations, removing a number of exemptions that allowed some investors to avoid marking derivatives in the deals at their market value. The change, which comes into affect after June 15, is expected to prompt many investors to unwind such deals.