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Loan Market Commentary 06/22/2010

Overnight, global equities gave up some of the gains caused by the China euphoria after a late day downgrade of French Bank BNP Paribas by Fitch put a bad taste in investor’s mouths. Europe and Asia were down around a point overnight and US equities were chopped around fair value for most of the night. The housing numbers this morning were disappointing showing that purchases of existing homes fell 2.2%. The data is reflective of contracts signed in March and April. This came as a shock to market since many thought that we would see one last positive number before the stimulus ended. But, because of tighter lending standards and the complexity of distressed sales, the number was somewhat justified but that didn’t stop the talking heads to begin speaking out about a double dip housing recession. So, we will see how this now plays out. The two year note auction was the real turning point in the market as it attracted strong demand showing that the market may be more risk adverse than it is letting on. Equities closed down 1.5%; DJI 10,293.52 (-1.43%), S&P 1095.31 (-1.61%)
The loan market felt weaker out of the gate but there were decent two-way flows this morning. Buyers were being selective as they have the upper hand and are getting what they want. As the day progressed we began to see better buyers. Off-the-run credits outperformed the market today with most names firming an eighth to a quarter point. Some flow names followed equities and were off between a quarter and half of a point. In all, it was not that bad of a day, despite the weaker tone in the morning, the loan market redeemed itself with advancers outpacing decliners 1.7:1. With some moderate headline risk in the near term contributing to low volume, we should continue to be quiet through the holiday weekend. But, this is just the calm before the storm. 2Q10 number will be rolling out shortly which will make for an interesting July. All eyes will be on top line revenue growth and if we fail to show that, those calling for a double dip recession may have been correct. So far, people seem optimistic, but that, as we know, can change very quickly. Have a good night, the New Home Sales number and FED announcement should be non events tomorrow.
  • Fitch downgraded BNP Paribas
  • US court blocks Obama ban on deepwater drilling
  • Sen Dodd says plans to offer tighter Volcker rule
  • Wall Street falls on energy sector, weak data
  • U.S. existing home sales weak despite tax credit, but supply falls
  • Treasuries higher on record low 2-yr Auction
  • Apple says iPad sales hit 3 mln, shares climb
  • Obama budget director Orszag to step down
  • China makes good on flexibility vow, yuan falls
  • Obama warns health insurers not to hike rates
  • UK slashes spending, raises VAT and taxes banks
New Issue
  • BNP Paribas is launching tomorrow at 10:00 a.m. a $750 million bank loan to refinance debt at GEO Group. The deal includes a $400 million, five-year revolving credit facility, a $150 million, five-year delayed draw term loan A and a $200 million, seven-year term loan B. The TLB is indicatively priced at LIB+325 with a 1.5% Libor floor. An OID is to be determined. The revolver and TLA are indicatively priced at LIB+275 at the initial tier on a leverage-based grid. Proceeds will be used to refinance the company's existing $484 million credit facilities and partially fund the company's acquisition of Cornell Cos. Existing corporate family ratings are Ba3/BB-, which are currently being reviewed. GEO's existing capital structure includes $250 million of 7.75% of senior unsecured notes maturing in 2017. Boca Raton, Fla.-based GEO is an operator of privatized prisons and mental health facilities for state, federal and international governmental clients.
  • Ralcorp Holdings Inc is gathering a group of banks for a $1 billion, 364-day bridge loan to back its $1.2 billion acquisition of American Italian Pasta Co, banking sources told Thomson Reuters LPC. Credit Suisse is lead and is inviting several banks to underwrite the facility. In an SEC filing today, the company said the bridge is expected to pay a margin of LIB+250-750 based on a ratings grid. Also based on the ratings grid, the commitment fee ranges from 37.5bp to 50bp and the duration fee is 75-100bp. Ralcorp has indicated that it expects to fund the transaction using a combination of cash on hand, borrowings under its existing revolving credit facility, and a committed bridge facility.
  • JP Morgan and Deutsche Bank are launching Thursday the financing backing Universal Health Services' $3.1 billion acquisition of Psychiatric Solutions Inc. In an SEC filing in May, the company said it would fund the acquisition with a $4.15 billion loan consisting of an $800 million, five-year revolving credit facility, a $500 million, five-year term loan A and a $2.85 billion, six-year term loan B. As per the SEC filing, pricing on the TLB would be LIB+350 and the facility would also have a 1.5% Libor floor. Financial covenants in the deal include a maximum total leverage ratio and a minimum net interest coverage ratio. Pro forma for the transaction, total debt-to-EBITDA will be 3.8 times. UHS will acquire PSI for a price of $33.75 per share in cash, or approximately $2 billion. Including the assumption of approximately $1.1 billion in PSI net debt, the total transaction consideration is approximately $3.1 billion. The 2009 combined revenue and EBITDA of UHS and PSI was more than $7 billion and approximately $1.1 billion, respectively. On a combined basis, in 2009 the company had approximately 6.2 million patient days in 221 heath care facilities across 37 states and territories. As a result of this combination, UHS' revenue from the behavioral health care business will represent approximately 45% of combined 2009 revenue and approximately 54% of combined 2009 EBITDA, before the allocation of UHS' corporate overhead costs.
  • Bank of America Merrill Lynch is launching tomorrow at 12:30 pm a $1.46 billion bank loan for Interactive Data Corp. The deal includes a $160 million, revolving credit facility and a $1.3 billion term loan B. The corporate family rating is B2/B. As per a previous SEC filing, the company will also raise a $700 million bridge-to-bond facility. The sponsors will inject 1.31 billion in equity. Proceeds are to back the company's $3.4 billion buyout by Silver Lake Partners and Warburg Pincus. The debt financing commitment has been provided by Bank of America Merrill Lynch, Barclays Bank, Credit Suisse and UBS Investment Bank. The company is a provider of mission-critical evaluated pricing and reference data, real-time market data and other services for the financial services industry.
  • Radio One launched yesterday via Deutsche Bank a $400 million bank loan to refinance its existing senior secured credit. The deal includes a $50 million, four-year revolving credit facility and a $350 million, seven-year term loan B. Price talk on the TLB is LIB+525 with a 1.5% Libor floor and a 99 area OID. Drawn pricing on the revolver is LIB+450 with a 50bp commitment fee. The company's existing bondholders will exchange their senior subordinated notes for $267 million in senior unsecured notes. The $101 million senior sub notes due 2011 will be exchanged at par, while the $200 million senior sub notes due 2013 will be exchanged at 90. The bondholders will also backstop second-lien notes to increase Radio One's investment in existing company TV One from 37% to 57%. Radio One, headquartered in Lanham, Maryland operates or owns interests in broadcasting stations, a cable television network, and Internet-based properties, largely targeting the African-American audience. The company reported sales of approximately $270 million through the 12 months ending March 31, 2010.
  • Willbros Group Inc is marketing its $300 million, four-year term loan B at LIB+750 with a 2% Libor floor and a 97 OID after re-launching the loan and scrapping its earlier plan to raise $250 million of six-year senior secured second-lien notes. The corporate family and facility rating is B2. The issuer and facility ratings are B2/BB-. Credit Agricole and UBS are leads on the term loan, while Credit Agricole is the sole lead on the revolver. Scotia and Natixis joined at the agent tiers. The deal backs the acquisition of InfrastruX Group.
New Issue-High Yield
  • Michael Foods Inc USD430m 144A sr notes due 07/15/18 (8y). NC4. Caa1/B- (stable/negative). Via GS/BAML/BARC joint books. 9.75% at 100. Del 06/29 (T+5).
  • Price talk of 8% area is out on Case New Holland Inc (NYSE:CNH) USD1.5bn (upsized from USD1bn) 144A sr notes due Dec 2017 (7.5y). Existing ratings Ba3/BB+. Via CS/UBS/GS joint books. W/reg rights. Books close 2pm NY time for pricing later this afternoon.
  • CKE Restaurants (CKR) USD600m 144A sr sec 2nd lien notes due 2018 (8y). NC4. B2/B. Via MS/Citi/RBC joint books. Investor call 11am tomorrow. UOP: Fund the acquisition of CKE by Apollo for USD12.55 cash per share (approximately USD1.05bn total value, including the assumption of approximately USD309m net debt). Also new USD100m sr sec revolver and USD456m equity from Apollo. Biz: owner of Carl"s Jr and Hardee"s quick-service restaurant chains. HQ: Carpinteria, CA.
  • Alliance Data Systems Corp has amended its credit agreement and its term loan agreement with Bank of Montreal, according to an SEC filing. The amendments clarified the application of Accounting Standards Codification to the calculation of compliance with the covenants contained in Article 5 of each of the credit facility and the term loan. In addition, the amendment to the term loan removed the prepayments that were required beginning June 30, 2010 and now provides that all principal and interest be paid on March 30, 2012.
  • Moody's Investors Service lowered the rating on Willbros United States Holdings Inc.'s ("Holdings") proposed $475 million bank credit facilities to B2 from Ba3 and withdrew the B3 rating on the proposed $250 million second priority senior secured notes issue of Holdings' parent, Willbros Group Inc ("Willbros"). At the same time, Moody's affirmed the B2 corporate family rating, the B2 probability of default rating and the SGL-3 speculative-grade liquidity rating of Willbros and repositioned these ratings to Holdings. The ratings outlook remains stable.
What to watch for Tomorrow June 23
• New home sales, May (Census Bureau) 10 a.m. ET
• FOMC meeting ends
• Treasury to auction $38 billion five-year notes
• Treasury to auction $25 billion 56-day cash management bills
• Equinix, Inc at Nasdaq OMX investor program 7:30 a.m. ET
• Foster Wheeler AG at Nasdaq OMX investor program 8 a.m. ET
• Rite Aid Corp. Q1 earnings, conference call 8 a.m. ET
• Burger King Holdings Inc. at Nasdaq OMX investor program, 8:30 a.m. ET
• Central Garden & Pet Co. at Jefferies consumer conference 9 a.m. ET
• Coinstar, Inc. at Jefferies consumer conference 9:30 a.m. ET
• Community Health Systems, Inc. at Wells Fargo health care conference 9:30 a.m. ET
• Helen of Troy Ltd. at Jefferies consumer conference 9:30 a.m. ET
• TRW Automotive Holdings Corp. at Deutsche Bank industrials conference 9:40 a.m. ET
• Ruby Tuesday, Inc. at Jefferies consumer conference 10:15 a.m. ET
• Carrols Restaurant Group, Inc. at Jefferies consumer conference 11:15 a.m. ET
• Hologic Inc. at Wells Fargo Securities health care conference 11:15 a.m. ET
• Susser Holdings Corp. at Jefferies consumer conference 11:15 a.m. ET
• Watson Pharmaceuticals, Inc. at Wells Fargo health care conference 11:15 a.m. ET
• Niska Gas Storage Partners LLC Q4 earnings, conference call 11:30 a.m. ET
• Kendle International Inc. at Wells Fargo health care conference 1 p.m. ET
• Ford Motor Co. at Deutsche Bank industrials conference 1:15 p.m. ET
• AGA Medical Holdings, Inc. at Wells Fargo health care conference 2 p.m. ET
• Domtar Corp. at Deutsche Bank industrials conference 2:05 p.m. ET
• Avis Budget Group, Inc. at Deutsche Bank industrials conference 2:45 p.m. ET
• Warner Chilcott plc at Wells Fargo health care conference 3 p.m. ET
• Dana Holding Corp. at Deutsche Bank industrials conference 3:05 p.m. ET
• Centene Corp. at Wells Fargo health care conference 4 p.m. ET