LCDX trades higher as players cover junk index shorts; Select Medical seeks extension

By Paul A. Harris

St. Louis, July 27 - The leveraged loan market firmed on Monday, according to traders and syndicate officials.

Heading into the Monday close the LCDX 12 index was at 92.45 bid, 92.75 offered, up 35 bps from Friday.

Part of the present strength of the LCDX can be attributed to short covering on the part of players who were short the high-yield bond tracking CDX index, one trader said.

The primary market remained generally quiet.

Nuveen Investments, Inc. increased its recently priced 12½% six-year second-lien term loan (Caa2) by $25 million, upsizing the deal to $450 million from $425 million.

And Select Medical is offering its lenders an additional 175 basis points in exchange for a 2.5-year extension on the maturity of its term loan.

Junk shorts appear wrong...for now

Sources saw more gains in the bank loan-based LCDX 12 index on Monday.

One reason for the strength is that a lot of players are presently long the LCDX and short high-yield, according to a trader.

"All the bears are hoping the high-yield falls, and it hasn't yet, so there is some short covering," the trader explained.

The LCDX has very little exposure to the troubled financial and home-builder sectors, the source added.

Also there has lately been a revival seen in the DIP market, providing an upward force on recovery rates. And that impacts the LCDX favorably.

"The high-yield CDX has more hair, in the longer term," the trader said.

"So the long LCDX, short high yield trade is losing money, right now. But over the remainder of the year there is a good chance it will make money."

Meanwhile a high-yield syndicate official, who spotted the junk bond-tracking CDX High-Yield 12 index, said that it was 5/8 of a point higher on the day at 88 5/8 bid.

This official said that short covering is believed to be a significant force at play in the junk bond index's recent strength.

CIT loans ease

On the subject of the financials, the loan paper of CIT Group eased on Monday, according to a trader.

CIT's revolver due 2011 ended the day in the high 50s, while the revolver maturing in 2010 finished "a little south of 60," said the trader.

Meanwhile the new $2 billion Libor plus 1,000 bps term loan, which priced a week ago at 95, remains above par.

However, like the revolvers it was "a hair weaker on the day," the trader said.

Apart from that it was a summer Monday, the trader said.

The market was firmer, but nothing moved conspicuously.

Select Medical seeks extension

Select Medical is offering its lenders a 175 basis points increase in the interest rate in exchange for a 2.5-year extension on the maturity of its term loan.

With the additional time, the $650 million loan would come due on Aug. 20, 2014.

The coupon would step up to Libor plus 375 bps from Libor plus 200 bps.

JP Morgan is leading the amendment.

It comes with no Libor floor. And there is no consent fee.

Commitments are due on July 30.

Nuveen adds $25 million

Elsewhere Nuveen Investments, Inc. increased its 12½% six-year second-lien term loan (Caa2) to $450 million from $425 million by adding $25 million on Monday.

There were no changes to the terms of the original deal, which priced at 90.00 to yield 15.082% on July 21.

Deutsche Bank Securities, Banc of America Securities, Morgan Stanley and Wells Fargo Securities were joint bookrunners.

The additional proceeds will be used to pay down Nuveen's existing first-lien loan.

The company is a Chicago-based seller of investment products.

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