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Loan Market Commentary 05/19/2010

The market was still trying to choke down the ‘Merkel pill’ that Germany made it swallow yesterday and investors remain concerned as Germany has eliminated a valuable hedging tool and have effectively branded CDS as ‘Evil’. The fear went around the horn last night and Europe was down close the 3%. This morning Futures were pointing to a lower open, but this was not entirely due to EU concerns. Today the Mortgage numbers came in weaker than expected and the CPI number pointed toward disinflation (-0.1%) while the core number was unchanged. These numbers sparked concerns that the US might not be are well off as previously thought. Despite a 2% rise in the EUR/USD, US equities fell over 0.5% as the Euro rallied on the back of speculation that the EU will step in and support the currency.
 
The loan market, which is taking cues from equities, opened much weaker and continued to trend lower through out the day. Most names were off around an eighth to a quarter in the morning and the LCDX 14 was lower at 95 ½ - 95 ¾ (-5/8). In the afternoon bids continued to drop and most names were down around half a point. TXU, FDC, and HCA were all a point lower on the day. Decliners outpaced advancer by 5-1. Trading volumes were a little better and the flows were two-way; a lot of fast money players were in the market hitting bids and some people got off the sidelines and were picking at offers. Wendy’s/Arby’s Restaurants new term loan broke for trading and despite the weakness, traded up to 99 7/8 – 100 ¼, after being issued at 99.5.
 
Overall the market was ugly and is becoming stagnant. It seems that the weakness in the high yield market is being to permeate the loan market. If the trend continues we could see the high yield primary slow causing a decline in bond-for-loan takes outs, which have helped move the loan market higher. But, with LIBOR nearly doubling since the beginning of the year, we may see more investors more into floating rate products. Only time will tell which is the greater force that will influence technicals.
 
One theme to keep in mind is that we have departed from watching the EU for cues, to looking at things happening within our own boarders. The CPI number today was particularly scary and very much in focus. The last negative reading we saw was back in October 2008, and we all know how the market was performing at that point. We have broken the long-term historical growth trend and that has many investors spooked. (http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=CPILFESL&s[1][range]=10yrs) There is nothing out there to support prices. Retailers are forced to drop prices in order to compete for business as the country faces a 10% unemployment rate and foreclosures are on the rise. With the dollar strengthening we are exporting less which is squeezing prices. If this trend continues it will choke off the growth.
 
With fear mounting around a whole bag of issues and with summer fast approaching; remain alert.
 
News
  • Three-month U.S. Libor rose to 0.47750% today from 0.30375% in mid-April.
  • Many of the nearly 100 non-financial companies that defaulted through distressed exchanges in 2009 remain at risk of another default, Moody's Investors Service said today in a new report..
  • Lions Gate Entertainment has spoken to billionaire investor Carl Icahn a couple of times over his hostile $7 per share offer for the company, said the company's chief executive, Reuters reported.
  • Georgia-Pacific and New Zealand's Rank Group are bidding for Pactiv Group, the maker of Hefty trash bags maker, the Wall Street Journal has reported.
  • Standard Pacific Corp announced the expiration and final results of its tender offer for any and all of its 7.75% notes due 2013. About $90 million of the notes have been validly tendered.
  • Cedar Fair is holding a bank meeting Friday. No details were available. In April, Cedar Fair terminated its buyout with Apollo Management. In February, the company entered into a $250 million RC and a $1.2 billion term loan B to back the buyout. Bank of America Merrill Lynch and JP Morgan led the deal.
Earnings
  • Abitibi Bowater Inc said it expects to report a 1Q10 operating loss of approximately $110 million, according to an SEC filing.
Ratings
Assigned
  • Moody's Investors Service yesterday assigned a B3 corporate family rating to Xerium Technologies.
On the break
  • Wendy's/Arby's Restaurants' new $500 million term loan broke for trading this afternoon in a 99.875-100.25 market. Pricing on the seven-year facility previously firmed at LIB+350, the wider end of LIB+325-350 talk, while the OID was tightened to 99.5 from 99 and 101 soft-call protection was added. The corporate family rating is B2, while the facility rating is Ba2.In 2005, the company tapped the market for a $157 million bank loan to back a dividend recap. The loan consists of a $20 million revolving credit facility, a $100 million term loan (LIB+325) and a $37 million second-lien loan (LIB+650). Camelbak's products include hydration packs, bottles, gloves, large combat/tactical packs, and accessories.
Loan New Issue
Price Talk
  • BNP Paribas is launching Friday a $110 million senior secured credit for Camelbak Products. The deal includes a $15 million revolving credit facility and a $95 million term loan B. Price talk is LIB+475 with a 1.75% Libor floor and a 99 OID. Proceeds are to refinance existing debt. The deal is unrated.
  • Camden Property Trust is in market with a $500 million, three-year unsecured revolving credit facility for refinancing. Bank of America Merrill Lynch is lead arranger. Pricing opens at LIB+230 with a 45bp undrawn fee based on BBB+/Baa1 ratings. Lenders are offered a minimum upfront fee of 20bp.
  • Pricing on Sedgwick Claims Management Services' $400 million first-lien term loan has firmed at LIB+400 with a 1.5% Libor floor and a 99 OID, sources said. Earlier, the first-lien term loan was talked at LIB+375-400. Pricing on the $200 million second-lien term loan has firmed at LIB+750 with a 1.5% Libor floor and a 98.5 OID. The corporate family rating is B2/B+. The first-lien facility ratings are B1/B+ and the second-lien facility ratings are B3/B-.Stone Point Capital, Hellman & Friedman and management are buying the company from Fidelity National Financial Inc, Thomas H. Lee Partners LP, Evercore Capital Partners and other minority shareholders. Sedgwick is a provider of claims and productivity management solutions to corporate and institutional clients.
High Yield New Issue
Announced
  • DriveTime Automotive Group Inc USD200m 144A sr sec notes due 2017 (7y). NC4 (MWC T+50bp). Equity claw: 3y 35%. B3/B. Via Jefferies/RBS/UBS joint books, Stephens, Baird, JMP as co- managers.
  • Willbros Group Inc (NYSE:WG) USD250m 144A sr sec 2nd lien notes due 2016 (6y). NC3. B3/B+. Via UBS/CA/CS joint books. Roadshow starts tomorrow. Pricing next week. UOP: along with 7,923,308 cmn shares (approx 19.9% of WG, USD82m at today"s price of 10.37), USD50m new term loan and cash on hand, to fund the acquisition of InfrastruX Group Inc. Biz: independent contractor serving the oil, gas, power, refining and petrochemical industries, providing engineering, construction, operations and other services. HQ: Houston, TX.
Priced
  • Dave & Buster's Inc USD200m 144A sr notes due 06/01/18 (8y). NC4 (MWC T+50bp).
  • American Tire Distributors Inc USD250m 144A 2nd lien sr sec notes due 06/01/17 (7y). NC3 (MWC T+50bp) (1st call par + 3/4 coupon). Equity claw: 3y 35%. B2/CCC+ (stable/stable). Via BAML/Barc/RBS/UBS joint books. W/reg rights. 9.75% at 98.76, yield 10%. +721bp vs 3.25% 03/31/17. Del 05/28 (T+7
 
What to WatchTomorrow
  • 8:30 a.m. ET: Initial claims (Department of Labor)
  • 9 a.m. ET: Bristow Group Inc. conference call
  • 9 a.m. ET: Compass Minerals International Inc. at BMO agriculture, protein and fertilizer conference
  • Kemet Corp. Q4 earnings, conference call 9 a.m. ET
  • 9 a.m. ET: Limited Brands Inc. conference call
  • 10 a.m. ET: Index of leading indicators (Conference Board)
  • 10 a.m. ET: Advance Auto Parts, Inc. conference call
  • Bon-Ton Stores Inc. Q1 earnings, conference call 10 a.m. ET
  • 10:30 a.m. ET: URS Corp. at Robert W. Baird growth stock conference
  • Sbarro, Inc. Q1 earnings, conference call 11 a.m. ET
  • 11:40 a.m. ET: Roper Industries, Inc. at Robert W. Baird growth stockconference
  • 2:30 p.m. ET: CF Industries Holdings, Inc. at BMO agriculture, protein & fertilizer conference
  • Red Robin Gourmet Burgers Inc. Q1 earnings, conference call 5 p.m. ET


Disclosure: no positions