Loans trade higher led by Charter, Reliant; Georgia-Pacific meeting for $2.5 billion facility

By Paul A. Harris

St. Louis, May 27 - Thursday's session in the bank loan sector took up where Wednesday's left off in the secondary market, with existing paper firming on the last full trading day before the Memorial Day break.

Meanwhile the bank meeting for Georgia-Pacific Corp.'s new $2.5 billion credit facility took place late Thursday afternoon.

Asked to comment upon the buoyancy reported in the leveraged loan secondary market over the past two sessions, one trader commented: "The high-yield market has been up the past couple of days. And it seems that a little of the new issue supply is dwindling as summer comes along and that people have cash to put to work.

"So they're bidding things up in the secondary market."

This trader said that an upward trend among existing loan paper that was seen on Wednesday continued through Thursday's session.

The source singled out the Charter Communications' term loan A which was "wrapped around 98, maybe a little better."

Meanwhile the Charter term B was seen at 99 bid, up an eighth to a quarter of a point.

The paper of Reliant Energy Inc. was reported to be "up a bit."

On Monday Reliant Energy announced that it has been awarded a $35.9 million 17-month contract by the U.S. Department of Defense to supply energy to several military installations including Andrews Air Force Base, home to Air Force One, and the Walter Reed Medical Center.

The Reliant revolver was seen at 95.375 bid, according to the trader, up three-eighths to half a point.

The Reliant term loan B was at 98.875 bid compared to Wednesday's 98.25 bid, 98.75 offered, "so up about half a point.

"Reliant is up a little more than the others," the trader added.

Dynegy, Maax break for trading

Maax Inc.'s $110 million term B (B1/B+), which came at Libor plus 275 basis points via Goldman Sachs, Merrill Lynch and Royal Bank of Canada broke for trading on Thursday, according to an informed source.

In a generally quiet session, with "a lot of people are out for the holiday," the paper was seen at 100.50 bid, 101.50 offered on the break.

Maax also sold $150 million of eight-year senior subordinated notes (B3/B-) at par on Thursday to yield 9¾%, at the tight end of the 9¾%-10% price talk. Goldman Sachs & Co. was bookrunner.

In addition to the $110 million term B, Maax is obtaining a C$130 million term A at Libor plus 250 basis points and a C$50 million revolver, also at Libor plus 250 basis points.

The Sainte-Marie de Beauce, Que. manufacturer of bathroom products and accessories, spas and kitchen cabinets will use proceeds to help fund a leveraged buyout by J.W. Childs Associates LP, Borealis Private Equity LP and Ontario Municipal Employees Retirement System.

Meanwhile Dynegy Inc.'s $1.3 billion credit facility (B2/BB-/B+) broke for trading Thursday. The facility includes a $700 million three-year revolver at Libor plus 400 basis points and a $600 million six-year term loan B, also at Libor plus 400 basis points.

A source reported seeing the paper at 100.75 bid, 101.25 offered.

The Houston energy company will use proceeds from the loan to refinance its existing revolver, repay higher-cost debt and for general corporate purposes.

"This week was pretty busy, especially when you take into consideration that it was leading up to a holiday," one market source commented.

"I think we will see little bit of a post-Memorial Day run before the summer begins.

"But there is still demand out there. People are saying there is plenty of cash."

Georgia-Pacific holds meeting for $2.5 billion

The bank meeting took place Thursday afternoon for Georgia-Pacific's $2.5 billion credit facility via Bank of America, Citigroup and JP Morgan.

The facility is comprised of a $500 million term loan at Libor plus 137.5 basis points, subject to a grid, and a $2 billion revolver expected to come inside of the term loan.

Loans, junk marching uphill

One leveraged loan buy-side source told Prospect News on Thursday that it is no coincidence that recent improvements in the leveraged loan and high-yield markets seem to have been taking place in tandem.

"The junk bond market has recovered notably since the swoon of April," the source said. "It's probably up a point and a half to two points, which is a pretty decent return.

"The triple-C type bonds and more interesting credit stories have done pretty well in the past month, whereas they got decimated in April. The interest rate sensitive double-Bs are suffering somewhat from the Treasury backup, which is pretty dramatic.

"In general there is a better level of happiness in junk. The outflows are continuing."

Later in the session sources told Prospect News that AMG Data Services had reported the seventh consecutive weekly outflow from the high-yield mutual funds, this time $162.3 million for the week ended May 26.

The buy-sider went on to say that at present investors are heard to be "flinging money at CLOs."

And that is not the only source of new cash for the loan market.

"Four Corners just closed its second closed-end fund for $400 million, but it can lever to $700 million," said the investor.

"The money is flowing well into the leveraged loan market. The good thing is that secondary pricing has come off a tad. One investment banker told us that CLO managers are being a little more discriminating. But the CLO liability side is being priced at all-time tights: Libor plus 37.50-38 on a triple-A piece. So I'm not quite sure why they would need to be more discriminating.

"My theory is that the hedge fund guys are getting blown up by the carry trade going away. Some of them were pulling back their bids on the bank loan side. And we've heard anecdotally that the ability to do second lien loans is going down. That's a private market for the hedge fund guys.

"But as far as this investment banker was concerned the hedge fund guys were still plenty happy, and still buying bonds and loans in equal amounts.

"We've talked about the meters on the bank loan side being pinned to 101-101.50. But for the past three weeks you've felt like there were actual offer sides between 101.25 and 101.50. You hadn't seen that for months.

"I'm not sure how long it's going to last."

UGS closes

In follow-up news, a private equity group composed of Bain Capital, Silver Lake Partners and Warburg Pincus completed its acquisition of UGS Corp. from Electronic Data Systems Corp. Funding for the acquisition included a $625 million credit facility (B1/B+) via JPMorgan, Citigroup and Morgan Stanley comprised of a $125 million revolver at Libor plus 275 basis points and a $500 million term B at Libor plus 275 basis points.

UGS is a Plano, Texas, provider of product lifecycle management software.

Leiner closes

Also closing Thursday was the acquisition of Leiner Health Products by private equity firms North Castle Partners and Golden Gate Capital.

Funding included a a $290 million senior credit facility (B1/B) via UBS and Morgan Stanley as joint lead arrangers and bookrunners. Credit Suisse First Boston was co-documentation agent. The facility included a $50 million five-year revolver at Libor plus 275 basis points and a $240 million seven-year term loan at Libor plus 300 basis points.

Leiner is a Carson, Calif., manufacturer of vitamins, minerals, supplements and diet aids, and producer of store brand over-the-counter drugs.

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