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Loan Market Commentary 03/30/2010

The loan market was quiet today; I can’t tell if it’s because people are out on vacation or if people are sidelined ahead of quarter-end. We saw a lot of loans firm but some of that seems to be the result of trader’s updating their axe’s since things are slow and new research is available. A $157 million OWIC was announced early this morning with bids due shortly thereafter. From what I have heard, it was well received being that it was composed of mostly BB names that have been in high demand. Elsewhere in the secondary, names like Lyondell, 24 Hour Fitness, RCN, Aramark and UPC all firmed up on news. Whatever, the catalyst may have been today, the path of least resistance in the secondary market continues to be higher. I have heard a lot of people calling for a correction, which many people would welcome, but all signs point toward recovery. Today’s OWIC is a great example that shows people are still willing pay up for high dollar names, so until we see that trend come to a halt, the outlook remains positive. We do have a few macro catalysts on the horizon to watch out for; the jobs number tomorrow being one of them. We need to see job growth in order to maintain the positive trend in the consumer confidence and spending numbers. Today’s consumer confidence rose to 52.5, up from 46 which helped maintain positive sentiment. Without the support of new jobs we will likely see a correction, even the dreaded double dip, but at this point in time the night sky is still red. Equities were choppy today but finished up firm today helping the LCDX 13 finish up an eighth to 104 ½ - 104 ¾.
  • A cash loan OWIC was circulated early this morning and had bids due at 10:15 am. The buyer was looking for $157 million notional, split between 42 names and most of it traded.
  • Xerium Technologies Inc today announced it has filed a pre-packaged plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code in a Delaware court. The pre-arranged plan, supported by the company's lenders, proposes to reduce the industrial textile manufacturer's debt by approximately $150 million, according to a company statement. To assure its liquidity during the restructuring process, Xerium has secured a commitment from its lenders for an $80 million term and revolving credit facility. The DIP loan broke for trading yesterday and is currently quoted at 99 ¾ - 100 ¾. The pre-packaged plan provides that approximately $620 million of existing debt would be exchanged for approximately $10 million in cash, $410 million in new terms loans maturing in 2015, and approximately 82.6% of the common stock of the company.
  • Blockbuster Inc said Monday it is not in compliance with a New York Stock Exchange rule requiring listed companies to have a global market capitalization of $75 million over a 30-day trading period. Earlier this month, the company said it might need to file for bankruptcy protection in order to manage its debt load. Blockbuster shares closed down 9.8 percent at 28 cents on Monday. Under NYSE rules, Blockbuster has 45 calendar days to submit a plan to get back into compliance within 18 months..
New Issue
  • Price talk on 24 Hour Fitness' loan is LIB+400 with a 2% Libor floor and an OID of 98.5. JP Morgan launched the $675 million refinancing today. In the afternoon Moody's Investors Service today assigned a Ba2 to the proposed $675 million senior secured credit facilityand affirmed the B2 Corporate Family Rating (NYSE:CFR). The rating outlook remains negative. The proceeds from a $600 million secured term loan B facility will be used to refinance the existing term loan facility and pay related fees and expenses. A new $75 million revolving credit facility will replace the existing $100 million revolver. The refinancing will eliminate significant debt maturities in 2011 and 2012 and expand headroom under financial covenants. Interest expense should increase because of the expected introduction of a LIBOR floor and a higher interest margin. The B2 CFR reflects weak credit metrics for the rating category, significant revenue concentration in California and a decline in revenues and profitability in 2009. The company's profitability during 2009 was negatively affected by the severe recession in the US and constrained access to credit by consumers. 24 Hour Fitness experienced a significant decline in personal training revenues and an increase in credit card rejections and customer attrition rates.
  •  Price talk on Christie/AIX's $172.5 million senior secured term loan is LIB+350 with a 1.75% Libor floor and a 99 OID. A rating of Ba2 is expected. SG and GE Capital are launching the six-year term loan tomorrow in New York. Proceeds are to refinance existing debt.
  • CF Industries Holdings Inc is seeking commitments to its $300 million, five-year revolving credit facility and $1.2 billion, five-year term loan B-1 by April 14 and will likely be pro rata. These two tranches are said to be targeted at banks while a separate $800 million term loan B-2 is targeted at institutional investors. Pricing on the revolver and TLB-1 start at LIB+350. The margin will step down to LIB+300 following a qualified equity offering. There is a 2% Libor floor and the OID is 98.5. Leads Morgan Stanley and Bank of Tokyo-Mitsubishi UFJ held a bank meeting on Monday to launch the financing backing the acquisition of rival fertilizer maker Terra Industries Inc. The acquisition is expected to close by October 15.
  • Debt financing commitments totaling $885 million have been put in place to back RCN Corp's $1.2 billion buyout by ABRY Partners, according to an SEC filing. Cable Buyer, a subsidiary of ABRY, has received from SunTrust, GE Capital and SG a financing commitment for a $620 million senior secured credit consisting of a $40 million revolving credit facility and a $580 million term loan. Metro Parent, another subsidiary of ABRY, has received from SunTrust a commitment for $265 million in senior secured credit facilities, which will include a $25 million revolver and a $240 million term loan. The loan is expected to be launched mid- to late April after the "go shop" period ends on April 14. Under the terms of merger agreement, each share of RCN common stock issued and outstanding immediately prior to the effective time of the merger will be entitled to receive $15 in cash, representing a 43% premium over RCN's average closing share price during the past 30 trading days and a 22% premium over the closing share price on March 4.  
  • Freedom Group will raise $200 million in 5.5-year senior PIK notes. The issuer can elect to pay interest at 11.75%, consisting of 5.875% PIK and 5.875% case, or all cash at 11.25%. Proceeds are to pay a dividend to the company's parent. Bank of America Merrill Lynch and Deutsche Bank are joint bookrunners.
  • PharmaNet Development Group Inc's proposed $175 million seven-year senior secured notes are being talked in the 10.75% to 11% range. Proceeds are to repay the company's credit facility and to fund a dividend payment to equity investors. The B3/B+ rated notes are non-call for four years. Jefferies and Deutsche Bank are joint bookrunners.
  • MGM Mirage has hired five banks for Hong Kong listing of its Macau operations, Reuters reported, citing sources. The IPO is expected raise about $500 million. BNP Paribas, Bank of America-Merrill Lynch, HSBC, JP Morgan, and Morgan Stanley have won the mandate for the long-awaited deal, sources told Reuters. If the planned float proceeds, it would be the third U.S. casino company since November to float its Macau operations on the Hong Kong stock exchange.
On the Break
  • CB Richard Ellis Services' new TLB-1A is quoted 100-100.375 after freeing to trade. Commercial real estate services firm CB Richard Ellis Services Inc was seeking to extend up to $100 million of its existing $115.5 million term loan A-4 maturing in December 2011 into a new TLB-1A due December 2015. TLA-4 lenders are asked to convert to the new tranche as an alternative to being prepaid or trading out at par. Pricing on the new tranche is at LIB+450 based on a leverage ratio of 3.75 times or less, compared to TLA-4's LIB+350. The new tranche will pay LIB+550 if the leverage ratio is greater than 3.75 times. If lenders do not extend and decide to sell at par to lead Credit Suisse, they have until March 17 to do so. Otherwise, those who agree to extend have until March 26 to do so. A conference call was held for the extension today.
  • Lyondell Chemical's new $500 million covenant-lite term traded up to 100.625-101.125 immediately after breaking at 100-100.5. The loan was sold at 99. The issuer cut pricing on the loan to LIB+400 from LIB+425 and reduced the Libor floor from 2% to 1.5%. Lyondell earlier downsized the TLB from $1 billion and increased its senior secured first-lien notes to $2.75 billion from $2.25 billion. The $2.75 billion notes consist of a $2.25 billion tranche and a 370 million euro tranche ($500 million equivalent). Both tranches priced at 8%. The term loan, which amortizes at 1% per year, has a $500 million accordion feature. Moody's assigned a B1 corporate family rating, while the term loan was rated Ba3. First-lien and total leverage is 1.6 times and 3.2 times, respectively. The company will have over $3 billion in liquidity upon emergence from bankruptcy. The company is also raising a $1.75 billion, four-year asset-based revolving credit facility via Citi and Deutsche Bank. The ABL is being offered at LIB+375. On the ABL, a commitment fee of 150bp will be offered on commitments of $100 million or more. A commitment fee of 100bp will be offered on commitments between $50 million and $100 million and a commitment fee of 75bp will be offered on commitments of less than $50 million. The term loan and ABL facility will back the company's exit from bankruptcy. UBS and Bank of America Merrill Lynch are joint bookrunners on the term loan B.
  • Emergency Medical Services Corp's new loan is 100.375 bid after breaking earlier today. The $425 million term loan is priced on a leverage-based grid. Pricing is LIB+300 for leverage ratio of more than 1.2 times, and LIB+275 for a leverage ratio of lower than 1.2 times. The revolver was previously upsized by $25 million to $150 million. Financial covenants include a total net debt-to-EBITDA ratio of 3.5 times, a senior secured debt-to-EBITDA ratio of 2.75 times, and a fixed-charge coverage ratio of 1.5 times. Bank of America Merrill Lynch, JP Morgan and Barclays Capital are leads. Proceeds are to refinance existing debt
  • UPC is looking to extend about $500 million of its existing tranche N due 2014 into a new tranche X due 2017. As part of the amendment, the company will up pricing from LIB+175 to LIB+350. A call has been scheduled for tomorrow at 9 a.m.
  • Cablevision Systems Corp is seeking to extend $1.25 billion of its term loan B-1 by three years to March 2016. In addition, the company is seeking a pro-rata amendment and extension of its $650 million term loan A and its $1 billion revolver to 2015 from 2012. Pricing on the TLA and the revolver are tied to a ratings grid.