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Leveraged Loan Market Commentary 07/23/2010

Overnight Europe was firmer as Britain’s economy grew more than expected last quarter helping to ease fears that the debt issues plaguing the EU would push them back in to recession. But, jitters over the stress tests pushed markets lower since the bank tests only apply to actively traded bond portfolios and don’t include bonds held to maturity. With a flawed methodology it came as no surprise that only 7 out of 91 failed the tests and the results failed to reassure investors. US equities chopped along most of the day but closed higher after news broke that Genzyme was approached by Sanofi-Aventis SA about a possible takeover, giving investors hope that M&A activity is picking up. The Dow closed at 10,424.62 (+0.99%) and the S&P closed at 1,101.66 (+0.82%).
It was just another summer Friday in the loan market. This morning some names came out an eighth firmer, but for the most the market was unchanged. The LCDX started the day out up an eighth at 95 7/8 – 96 1/8, but fell back to unchanged. Right now, technical’s are the major driver pushing bids higher as the market anticipates prepayments from Swift, Spirit Finance, and Freescale and loan mutual funds continue to see inflows. Over the past three weeks the loan market has had close to $200 million in inflows. So, the path of least resistance is higher, for now, as loans continue to offer the best risk/reward profile and with uncertainty over the health of the EU we should continue to continue to attract cash. Have a great weekend.
  • US stock futures up on Microsoft, Ford, Europe
  • Ford profit tops Street view; shares climb
  • McDonald's profit slightly tops Street view
  • Moody's warns of Hungary downgrade after IMF break à Which means one is coming…
  • N.Korea threatens physical response to U.S. moves à Mostly ignored by the market, but keep an eye out for this.
  • European data points to surging economy          
  • Seven banks fail Europe test
  • US trims deficit forecast, economy faces headwinds
  • New safe-haven currencies shine amid debt fears  
  • Ford Motor's TLB-1 is up a tick at 96.5-97 after the company posted a rise in 2Q10 sales and earnings. Meanwhile, the TLB-2 is currently 95.5-96.5, up about 50bp. The company said net income in the quarter was $2.6 billion, up $338 million from the year-earlier period. Revenue in the quarter was $31.3 billion, up $4.5 billion from 2Q09. Ford ended the quarter with total liquidity of $25.4 million. Automotive operating-related cash flow was $2.6 billion in the quarter.
  • Container shipping company Horizon Lines Inc's said 2Q net income was $3.7 million, or 12 cents a share, compared with net loss of $31.1 million, or $1.02 a share, last year. Analysts on average expected earnings of 9 cents a share.
  • Fitch Ratings has affirmed the 'BB-' Issuer Default Ratings assigned to Cablevision Systems Corporation (NYSE:CVC) and its wholly owned subsidiary CSC Holdings LLC. The outlook is stable. As of March 31, 2010 CVC had approximately $11.4 billion of debt outstanding.
  • Harrah's Entertainment late yesterday announced it has submitted an application to the Kansas Lottery Commission for a proposed Harrah's casino resort in Mulvane. Highlights of the long term proposal include: a Las Vegas style casino, restaurants and a boutique hotel, including additional entertainment and meeting space.
  • Education Management Corp.'s term loan C rose to 93.5-94.5 this morning after the U.S. Department of Education proposed a regulation to limit the ability of for-profit schools to graduate students with high debt-to-income ratios. The loan followed the company's stock, which has been trending higher throughout the week on rumors the proposal would be less onerous than previously feared. The company's stock rose more than 15% this morning. Education Management, a for-profit provider of educational services, operates 72 campuses across the U.S. and Canada, training 72,000 enrolled students in fields such as fashion, psychology and web site design.
  • LNR Property's loan rose today after the company secured an extension of its forbearance agreement. The loan is currently quoted 95-96, up about one point. the company walked away from a planned refinancing loan earlier after pricing was bumped up to LIB+750 from LIB+550 with an OID in the 98 area, a 2% Libor floor and 101 call protection.
New Issue
  • Allscripts could upsize its $320 million, five-year term loan A and scrap the originally planned $250 million, six-year term loan B. The TLA and a $150 million, five-year revolving credit facility have been heavily oversubscribed. The final terms are expected to be out shortly. There will no need to tap the institutional loan market since the pro rata facilities are oversubscribed. Both the TLA and the revolver offer a spread of LIB+325 and the revolver comes with a 50bp commitment fee based on leverage ratio of 2.1 times. The minimum upfront fee is 50bp on commitments of less than $25 million. Commitments were due yesterday. The TLA repays in quarterly installments of: 1.25% in year 1, 2.5% in year 2. 3.75% in year 3, 5% in year 4, and 6.25% in year 5. The deal has an up to $250 million incremental facility. Financial covenants include a minimum interest coverage ratio of 3.5 times and a maximum leverage ratio of four times. JP Morgan, Barclays Capital and UBS are leads on the financing backing the company's $1.3 billion all-stock acquisition of Eclipsys. The corporate family rating is Ba2/BB+ and the facility rating is Ba2/BBB-.
  • NTELOS' $125 million add-on term loan is being offered at a 99.5 OID. Pricing is LIB+375 with a 2% Libor floor, the same as that on the issuer's existing loan. JP Morgan launched the deal today. NTELOS announced in a press release earlier that it will finance its $170 million acquisition of One Communications Corp's (NASDAQ:OCC) FiberNet business with the $125 million incremental term loan under its existing bank loan. The acquisition will also be funded through availability under the company's undrawn revolving credit facility and cash on hand.
  • Cedar Fair has upsized its term loan B by $25 million to $1.275 billion and downsized its revolving credit facility by the same amount to $275 million. In addition, pricing on the TLB has been flexed down to LIB+400 from LIB+425 amid strong demand. The 1.5% Libor floor and a 99 OID are unchanged. JP Morgan leads the deal. Earlier, the company upsized its eight-year note issue from $300 million to $405 million and priced it to yield 9.375%. With the company's issuance of bonds, senior secured leverage will drop to 3.6 times from 4.7 times. The corporate family rating is Ba3/B+, while the facility rating is Ba2/BB-.
High Yield
  • Vantage Drilling Co USD960m 144A (w/rr) sr sec 1st lien Notes due 2015. NC2.5. Expected Ratings low single B. Via JEF/DB joint books. Pareto lead manager. Johnson Rice, Arctic, RS Platou, FBR co magers. Price talk 13% area yield (includes approximately 3.5-4 points of OID). Books close Monday, 7/26, at 10am EST. Pricing after market close.