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Syndicated Loan Market Commentary 08/23/2010

The markets opened up firm this morning as M&A activity boosted optimism. However that was short lived as fears of a double dip came back into focus, prompting a flight to safety. It is hard to ignore the data and this will continue to drive the markets direction. The Dow and S&P 500 both closed lower at 10,174.41 (-0.38%) and 1,067.36 (0.40%) respectively.
The loan market was very quiet but had a positive tone as buyers remain active. Flow names were mostly flat with some down an eighth, but overall loans firmed. Strategic Partners new term loan broke for trading and was accepted well by the market, quickly moving up into the par context after being issues at 99. Very few deals are expected to syndicate between now and Labor Day, so any decent paper that hits the market will be sought after. Investors are attracted to yield, and without prospects of a quick turn around in the economy equities will remain heavy, forcing money in our direction. So stay positive. Volumes will be light for the next two weeks but get ready September should be a busy one. Have a good night.
Must Read Articles
  • Potash Corp's board urged shareholders today to reject BHP Billiton's hostile $38.6 billion offer and said it was in talks with several potential suitors for a superior deal.
  • Wynn Las Vegas LLC, a wholly-owned subsidiary of Wynn Resorts Limited, completed its offer to purchase any and all of the 6.625% First Mortgage Notes due 2014 issued by WLV and Wynn Las Vegas Capital Corp. WLV has accepted for payment the approximately $987.85 million in notes validly tendered.
  • Advanced Micro Devices Inc today said it has completed its offer to purchase for cash, on a pro rata basis, up to $800 million in aggregate principal amount of its 6.00% Convertible Senior Notes due 2015. Pursuant to the offer, $1,528,656,000 aggregate principal amount of the notes were validly tendered.
  • Cenveo Inc today said it is no longer seeking to acquire assets of bankrupt NEC Holdings Corp, according to a statement, asserting that NEC and its creditors were seeking to saddle Cenveo with disproportionate risk relative to other bidders. "Despite offering the unsecured creditors what we believed to be the highest potential recovery out of all the bids at the auction, said Cenveo Senior Chairman and Chief Executive Officer Robert G. Burton of the proposed bid, "it became very clear to us that the debtors and the creditors' committee were requiring significantly more in cash and guarantees from Cenveo than from the other bidders." Cenveo expects to continue generating strong cash flow and to pay down debt or make strategic accretive acquisitions that deleverage its balance sheet and strengthen its product leadership positions, added Burton. Stamford, Connecticut-based Cenveo had offered to buy NEC for at least $140 million in cash in June. NEC chose a $134.5 million offer by the Gores Group to act as the stalking horse bid at a court-supervised auction. NEC, parent company of National Envelope, filed for bankruptcy protection in June.
  • Goldman Sachs has set a bank meeting for the morning of Sept. 8 in New York to launch the financing backing the merger of Valeant Pharmaceuticals and Biovail. Jefferies and Morgan Stanley are to the right of Goldman Sachs. As per a commitment letter filed with the SEC in June, the $3.022 billion credit includes a $250 million, 4.5-year revolving credit facility, a $500 million, five-year term loan A and a $2.272 billion, six-year term loan B, of which $300 million will be available on a delayed-draw basis. The revolver and TLA will be priced at LIB+450 and the TLB will be priced at LIB+475 with a 1.75% Libor floor, according to the commitment letter. Pricing on all three tranches will step down by 25bp if the facility ratings are at least Ba3/BB- by closing. Conversely, pricing will step up by 75bp if facility ratings are B2/B or lower. The revolver and delayed-draw tranches will have a 75bp undrawn fee. Valeant 7.625% and 8.375% senior unsecured notes will be refinanced as part of the transaction. On a trailing 12-month basis as of March 31, 2010, the combined company would have had pro forma revenues of $1.75 billion and pro forma cash flow from operations of $575 million, according to the release. The new Valeant expects to generate at least $175 million in annual cost synergies in the second year.
On the Break
  • Strategic Partners' new $175 million term loan B is quoted in the 99.875-100.25 range after breaking for trading. The buyout loan was cut to LIB+550 from LIB+600. At the same time, the OID was tightened to 99 from 98. A 1.75% Libor floor remained unchanged. Leverage through the first-lien is 3.2 times, while leverage through the mezzanine piece is 4.6 times. The corporate family rating is B2, while the facility rating is B1. There is an unrated $75 million mezzanine piece. Credit Suisse leads the $205 million bank loan backing Strategic Partners' LBO by Bank of America Merrill Lynch Partners. The deal includes a $30 million revolving credit facility and a $175 million term loan. Strategic Partners provides consulting, coaching, and training services to federal agencies and Corporates.
  • Smart & Final has pulled the extension of its $386 million first-lien term loan by two years to May 2016. The issuer will extend roughly 98.5% of its $150 million second-lien loan by two years to November 2016. The first-lien term loan will now expire on its original maturity date at LIB+300. Earlier, the company was proposing a spread bump of LIB+400 and a 50bp MFN protection on the first-lien tranche that would have been extended. Smart & Final's existing second-lien piece has a PIK feature. On the extended tranche, the PIK option would be eliminated and the coupon would be LIB+875 in cash, with a step-up to LIB+900 after two years. The extended second-lien would also have 50bp MFN protection. In April 2007, Smart & Final obtained a $238 million term loan B (LIB+300) and a $140 million second-lien term loan (LIB+675) to back its $813 million LBO by Apollo Management.
  • Commercial real estate lender iStar Financial is asking to extend its second lien term loans due 2011 and 2012 and is offering higher spreads on the extended loans. The company is amending its first and second lien loans under a restructuring proposal that is advised by Lazard. The company stated in a presentation to lenders that, "notwithstanding the company's improved outlook, iStar is facing significant debt maturities and would like to work with the lenders to effect a consensual deal to extend $2.6 billion of second priority loans, consisting of the following: $1.7 billion second priority loan due June 2011 and $0.9 billion second priority loan due 2012." The 2011 loan is proposed to be extended to June 2014 with a spread of LIB+300, increased from the existing LIB+150. The 2012 loan is being extended to June 2015 with a spread of LIB+350, increased from the existing LIB+200. iStar is also asking to repurchase its second lien loans at a discount of not less than 10% of the aggregate principal amount repurchased. Meanwhile, the company is planning to make a $500 million paydown on its first lien loan due June 2012. The remaining $500 million first lien loan will maintain the same maturity and pricing of 250 bps over LIBOR. The company will need 51% of votes to get the proposed amendment passed.
What to Watch Tomorrow
  • Existing home sales, July (National Association of Realtors) 10 a.m. ET
  • Treasury to auction $25 billion 52-week bills
  • Treasury to auction $37 billion two-year notes
  • Burger King Holdings Inc. Q4 earnings before market open, conference call 10 a.m. ET
  • Murray Energy Corp. Q2 earnings, conference call 11 a.m. ET
  • NOVA Chemicals Corp. Q2 earnings, conference call 11:30 a.m. ET
  • Petrohawk Energy Corp. at EnerCom oil & gas conference 1:20 p.m. ET
  • Alimentation Couche-Tard Inc. Q1 earnings, conference call 1:30 p.m. ET
  • Tuesday Morning Corp. Q4 earnings, conference call 5 p.m. ET
  • Carrizo Oil & Gas, Inc. at EnerCom oil & gas conference 5:35 p.m. ET
16th Annual Thomson Reuters LPC Loan Conference
Wednesday September 22, 2010
Marriott Marquis, New York City
Now in its 16th year, the Thomson Reuters LPC Loan Conference has become one of the industry's premiere annual events. Join investors, lenders, financial sponsors and treasurers as they discuss the outlook for a continually evolving loan market.
Click Here to view our detailed agenda and to access registration information.
The views expressed are solely the author’s and are not associated with Reuters News nor do they reflect the opinions of Thomson Reuters.