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Leveraged Loan Market Commentary 07/08/2010

Overnight Asia and Europe pushed higher with renewed optimism for 2Q10 earnings. In Europe, the better than expected German Industrial production numbers pushed equities up close to 2%. In the US, the pace of the day was set by the jobless claims numbers, which came in less than expected. Also, some early retail sales number helped boost optimism but overall the numbers were mixed with companies like Neiman Marcus disappointing reporting slower growth.
In the loan world, bids felt firmer again today. High beta names like TXU, FDC, and HCA were out the door a quarter to half a point firmer. The LCDX 14 also was first seen this morning up a quarter to 95.125/95.375 and firmed an eighth amid the late day rally in equities to close at around 95.5/95.75. Some off the run paper and distressed names were better bid; Metro-Goldwyn-Mayer’s TLB was up around a quarter point and Tribunes TLB was up an eighth. Trading volumes were thin again today with as most accounts sitting on the sidelines. Bloomberg put out a good article, [(BN) Hedge Funds 'Frozen in Headlights' Scale Back Trading], talking about how low volume and high volatility has frustrated many investors. It’s nothing that we don’t already know, but it just re-affirms the obvious. Yesterday, Bank of America Merrill Lynch cut its forecast for U.S. investment-grade debt sales in 2010 to $700 billion from $800 billion, citing growth in company cash balances. So with a glut of cash on the sidelines and an estimated $100bn decrease in IG sales, we could be setting ourselves up for a strong technical rally in the second half of the year, if 2Q10 earnings mostly impress. Investors have been sitting in cash for a while and are growing hungry for yield, so I am confidant that we will see money flow back to loans and high yield markets. So, be patient and just watch the earnings roll out. Expect low volume and volatility to continue.
  • ECB holds rates at 1.0 pct, sees uneven recovery 
  • Earnings optimism boosts stocks, euro            
  • German industry grows more than expected in May
  • Warm weather, holidays help June US retail salesà Ignore the headline, results mixed overall, big sales in June drove buying,
  • US jobless claims drop, offer hope for recovery à Initial Claims 454K verses an expected 460K. Last weeks numbers were revised higher.
  • Jobless, housing add risks to US recovery-IMF
  • Dow up 1 pct led by industrials, McDonalds, retail sales and jobs data             
  • Global default rate ends 2Q10 at 6.1% down from 10.0% last quarter (Moody's)   
  • Metro-Goldwyn-Mayer's term loan is relatively unchanged today as the company seeks another forbearance agreement. The loan is currently quoted 45-46, up about 75bp from this morning's levels but flat from earlier in the week. The company is seeking to extend its forbearance agreement, which is currently scheduled to end July 13, to September 15. In a presentation today, the company provided lenders with an update on its cash flow situation but nothing on a potential restructuring. MGM creditors have waived interest payments since last September.
New Issue
  • Citi is launching Tuesday the bank loan backing inVentiv Health's $1.1 billion LBO by THL Partners. The financing includes a $75 million, five-year revolving credit facility and a $525 million, six-year term loan. In addition, the company will also raise $275 million in senior unsecured notes. The corporate family rating is B2, while the credit facility rating is Ba3. As per an SEC filing from May, THL Partners will contribute $384 million in equity. THL Partners will pay $26 per share, a premium of 7 percent to inVentiv's closing price on May 5. However, InVentiv shares had already risen 42 percent since March 26, when the company confirmed that it had been approached by investors. inVentiv expects to complete the deal in the third quarter of 2010.
  • SunTrust is launching July 14 a $675 million loan for Midcontinent Communications. The deal consists of a $125 million, 5.5-year revolving credit facility, a $200 million, 5.5-year term loan A and a $350 million, 6.5-year term loan B. Price talk on the TLB is LIB+450-475 with a 1.75% Libor floor and a 98.5 OID. The corporate family and facility ratings are both B1. Proceeds will be used to fund a roughly $320 million dividend to Midcontinent's partnership shareholders and to refinance roughly $230 million in debt. The company is a cable multiple system operator partly owned by a subsidiary of Comcast Corp.
  • Veritext's buyout loan is funding today in line with original price talk of LIB+475. Madison Capital leads the $120 million deal, which backs Veritext's buyout by Investcorp. The deal includes a $15 million revolving credit facility, a $75 million term loan B and a $30 million acquisition line, which is to be used in 30 months. There is a 1.5% Libor floor and a 98 OID. Veritext provides deposition and litigation services.
Price Flex
  • Pricing on software firm Syncsort's $125 million loan has been flexed up to LIB+550 from LIB+500. The OID has been widened to 98 from 98.5. A 2% Libor floor remains unchanged. The Golub Capital-led deal consists of a $5 million revolving credit facility and a $120 million term loan. Proceeds are to refinance debt. Insight Venture Partners is the company's sponsor.
  • Moody's Investors Service assigns a (NYSE:P) Ba3 rating to GEO Group, Inc.'s proposed $750 million senior secured credit facility. The facility is intended to partially finance the acquisition of Cornell Companies. All of GEO Group's ratings remain under review direction uncertain, pending the completion of its merger with Cornell Companies, Inc. expected to close in the third quarter 2010. On April 19, 2010, the GEO Group announced plans to acquire Cornell for stock and/or cash at an estimated enterprise value of $685 million including the assumption of approximately $300 million in Cornell debt. The proposed bank facility includes a new $400 million 5-year revolving credit facility; $150 million 5-year Term Loan A; and $200 million 6-year Term Loan B. Proceeds from the term loans and draws on the revolver will be used to satisfy the cash component of the transaction, refinancing existing GEO bank debt and Cornell's recourse debt upon completion of the merger.
  • Moody's Investors Service assigned first time ratings to Papillon Acquisition Inc., the vehicle that will be used to acquire inVentiv Health Inc ("inVentiv") in its leveraged buyout by Thomas H. Lee Partners. Moody's assigned a B2 Corporate Family Rating and a B2 Probability of Default Rating. Concurrently, Moody's assigned a Ba3 rating to the senior secured credit facility and a Caa1 to the unsecured notes that will be used in part to finance the leveraged buyout. Moody's currently rates the predecessor company, inVentiv Health Inc. (old) and we will withdraw these ratings at the close of the transaction. The outlook for the ratings is stable. Moody's also assigned a Speculative Grade Liquidity Rating of SGL-2, or good liquidity, to the new company. The B2 Corporate Family Rating reflects the considerable financial leverage taken on in the leverage buyout transaction and resulting credit metrics that are reflective of a single-B rating. The ratings are also constrained by a number of risks inherent in the business including: project cancellations due to FDA non-approval decisions or generic competition of client's products, reduced client marketing budgets, and pharmaceutical industry consolidation.
  • Moody's Investors Service assigned a B2 corporate family rating to first time issuer, SonicWALL Inc, as well as Ba3 ratings to its new first lien debt facilities. The new debt, along with equity from Thoma Bravo, LLC and the Ontario Teachers' Pension Plan and an unrated second lien debt facility, will be used to finance taking SonicWALL private. The ratings outlook is stable. The B2 ratings reflect the high leverage as a result of the buy-out, but recognize the company's strong market position in the unified threat management (UTM) market, particularly catering security solutions to small to mid-sized enterprises. The ratings also consider the company's large installed base of customers, strong distribution network and recurring nature of services revenue associated with the product offering. Combined with the strong growth prospects in the UTM sector, these factors provide the company sufficient wherewithal to service the high debt levels. The ratings also assume a moderate level of continued acquisitions to fill in product lines or acquire strategic technology.
What to watch tomorrow:
July 9
  • Wholesale inventories, May (Consensus Bureau) 10 am ET
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