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Loan Market Commentary 06/03/2010

The market woke up feeling pretty good this morning after getting a decent night’s rest. There were no negative headlines out of Europe, Asia, or the Middle East to disturb the markets and global equities were higher overnight. In the US we were all set to open up firm. Futures were pointing to a high open and then at 8:30 the unemployment number came out a little less that expected which helped keep futures propped up and start strong. Loans were firm out the door; flow names were higher by a quarter to half of a point. New issue paper was slightly better bid as well. The LCDX opened up at 95 -95 ¼ and stayed around that level all day on light volume. Cash saw light volume as well as most of the trading was situational. VNU (Nielsen) was firmer by roughly three-quarters of a point on the IPO news. Neiman Marcus was active on news that they posted an increase in revenue last month and their term loan was firmer by around half a point. For the most part the secondary market was choppy and it was tough to get a clear direction in the market. However at the end of the day when looking at the movement, advancers ended up outpacing decliners.
Tenneco and Protection One’s new term loans broke for trading today and both traded atop their OID’s. Tenneco’s TL broke for trading at 99 ½ - 100 ¼ after being issued at 99 while Protection One’s TL broke at 99 – 99 ¾ after being issued at 98.5. New Issues remain to be hot items however; they are getting increasingly expensive with most new deals closing at the wider end of talk. We are starting to see deals get downsized as well, like we did today with Spectrum Brands. But, it’s nothing to be concerned about, the primary is just checking itself a bit; a couple months ago cov-lite deals were getting done and most deals were closing at the tighter end of talk.  
Bank loan mutual funds saw $35.3 million in inflows the week ended June 2, according to Lipper FMI. Last week, loan funds saw $127 million in outflows. So, people have cooled off after last weeks mania.  High yield bond mutual funds saw outflows for the fifth consecutive week. This week, $759.2 million in outflows were recorded, following $1.35 billion in outflow last week. Investment Grade funds saw an inflow of $126 million and Equity funds saw an inflow of $2.697 billion. Money Markets saw an outflow of 11.469 billion. So, clearly there has been a shift in investment patterns and some people are getting back into the pool
In all it was a pretty light day in the credit world but don’t check out for the weekend yet, all eyes will be on the jobs number in the morning, so let’s hope there are no surprises with that number tomorrow. If all goes to plan we should see a nice pop on decent trade volume in the morning followed by silence as slow summer Fridays are back.
You’re welcome for last night Flyers fans. Let’s Go Hawks!
  • May brought mixed sales results for retailers. Based on reports of 11 retailers out of 28 tracked by Thomson Reuters, 60 percent came in ahead of expectations, while 40 percent fell short. Analysts were expecting total May same-store sales to show a rise of 2.6%, compared with a year-earlier decline of 4.8%.
  • Nielsen Holdings' term debt rose after the company filed for a $1.75 billion IPO. The VNU extended TLB rose to 96.875-97.625 and the TLA rose to 94.25-95, both up about 50bp, sources said. Proceeds from the offering will go to paying down debt, the company said in its filing.
  • Neiman Marcus' TLB rose about 50bp to 91.75-92.5 this morning after the retailer posted a rise in total and comparable revenues for the month of May. This morning, the company said total revenues rose 8.8% to $267 million last month. Comparable revenues rose 7.8% to $265 million.
  • Saks Inc said May sales rose 6.9% to $177.4 million Comparable store sales increased 5.8% for the month.
  • Rite Aid Corp reported a 1.7% decrease in May same store sales. Front-end same stores sales decreased 3.6%. Total drugstore sales for the five-week period decreased 2.7% percent to $2.439 billion.
  • Hovnanian Enterprises Wednesday posted a net loss of $28.6 million, or 36 cents per share, for the second quarter ended April 30, compared with a loss of $118.6 million, or $1.50 per share, last year. Analysts, on average, had expected a loss of 64 cents per share on revenue of $351.95 million.
  • Citadel Broadcasting Corp today announced that it has completed its financial restructuring and emerged from Chapter 11. The radio broadcaster cut $1.4 billion in debt while in bankruptcy. In exchange, senior lenders will receive 90% of the equity in the reorganized company, and a share of the remaining debt, converted to a new term loan. The new $762.5 million, five-year senior secured term loan is priced at LIB+800 with a 3% Libor floor. Citadel's Plan of Reorganization was confirmed by last month in United States Bankruptcy Court for the Southern District of New York.
On the Break
  • Tenneco Inc's new $150 million, six-year term loan B broke for trading this afternoon in a 99.5-100.25 market. The loan is priced at LIB+475 and was sold at 99. JP Morgan leads the loan, which will be used to refinance existing debt. Corporate family ratings are B2/B, while facility ratings are Ba3/BB-.
  • Protection One 's $390 million, six-year term loan broke for trading this afternoon in the 99-99.75 range. The loan cleared at LIB+425 with a 1.75% Libor floor and a 98.5 OID, in line with talk
New issue
  • Kennametal Inc is mulling a four-year facility to refinance its existing credit facility. The company has approached relationship lenders on the refinancing. Kennametal has an existing $500 million, five-year revolving credit facility due March 2011 that was led by Bank of America Merrill Lynch. The facility is paying LIB+45 and has a 10bp annual fee.
  • A total of 23 banks have piled onto Jack Henry & Associates Inc's $300 million, five-year two-tranche financing backing the acquisition of Kentucky-based iPay Technologies. The 23 includes leads Wells Fargo and Bank of America Merrill Lynch which hold $33 million each.
  • Olam Holdings Partnership has launched today at a bank meeting its $300 million, three-year bullet term loan. The facility is guaranteed by Singapore parent Olam International. Pricing is LIB+275 with a 125bp commitment fee. Banks are invited to join at an upfront fee of 62.5bp for commitments of $25 million or more, or 50bp for less than $25 million. Financial covenants on the parent firm include a minimum consolidated shareholders equity of S$900 million, a maximum consolidated net debt to consolidated shareholders equity of 4.5 times, and a minimum interest coverage ratio of 1.5 times. Proceeds are for working capital and commitments are due June 22.
Price Talk
  • Hearthside Food Solutions is offering LIB+550 with a 1.75% Libor floor and a 98 OID on its $280 million financing backing its acquisition of Consolidated Biscuit Co and the cereal division of Golden Temple. Commitments are due June 18. The deal consists of a $245 million, six-year term loan and a $35 million, five-year revolving credit facility with a 75bp undrawn fee. Senior secured and total leverage are 3.2 and 4.2 times, respectively.
  • Calpine Corp has bumped up pricing on its $1.3 billion, sever-year term loan. The loan is now being offered at LIB+550 with a 1.5% Libor floor and an OID of 98. 101 call protection was also added to the facility. The facility rating is Ba3, while the corporate family rating is B1.
  • Pricing on Telx Group's $150 million term loan is firming at LIB+600, the wider end of LIB+550-600 talk. The OID is 98 and the Libor floor is 2%. The issuer has tightened covenants and also added soft call protection of 102 and 101. Senior leverage is 3.75 times. The corporate family rating is B2, while the facility rating is B1.
  • Styron has upsized its first-lien term loan from $675 million to $800 million and has eliminated its previously offered $125 million second-lien term loan. The first-lien term loan is now being offered at LIB+550 with a 98.5-99 OID. Initial price talk on the facility was LIB+475 with a 99 OID. A 1.75% Libor floor applies to the deal.
  • SPB deal upsized to $750m from originally announced $500m. Price talk @ 9.75% area yld.
  • Spectrum Brands has flexed pricing up to LIB+650 from LIB+450, and decreased the size of the loan to $750 million from $1 billion. The OID has been widened to 98 from 99, while the Libor floor remains set at 1.5%. The six-year loan offers 101 call protection on voluntary prepayments for one year and amortization of 2.5% in year one followed by 5% per annum in subsequent years. Commitments are due June 4.
  • Price talk is LIB+375-400 on Al Gulf Coast Terminals LLC's $305 million, six-year term loan. The OID is 98-98.5 and the Libor floor was 1.5%. Proceeds are to refinance debt and pay a dividend to the sponsor, Arclight Capital Partners. Barclays Capital launched the deal today. The facility is rated Ba2/BBB-.
  • Digital Realty Trust Inc is seeking an amendment to its $720 million revolving credit facility due in August and led by Citi, sources said. Lenders are asked to consent by June 11 for a 5bp amendment fee.
What to Watch TomorrowJune 4
  • Employment situation/Non-farm payrolls, May (Bureau of Labor Statistics) 8:30 a.m. ET
  • AGCO at Sanford C. Bernstein strategic decisions conference 8 a.m. ET
  • DynCorp International Inc. Q4 earnings, conference call 8:30 a.m. ET
  • B&G Foods, Inc. at RBC consumer & retail conference 9 a.m. ET
  • MetroPCS Communications, Inc. at Sanford C. Bernstein strategic decisions conference 9 a.m. ET
  • Kaiser Aluminum Corp. at Goldman Sachs basic materials conference 9:10 a.m. ET
  • Navarre Corp. Q4 earnings, conference call 11 a.m. ET