Allegheny Energy firmer on sale of energy supply contract, Jostens flexes down on revolver

By Carlise Newman

Chicago, July 28 - Allegheny Energy Inc. bank debt firmed briskly in Monday's trading after an announcement that the a subsidiary would sell its energy supply contract with the California Department of Water Resources and associated hedge transactions to Goldman Sachs Group Inc.'s J. Aron & Co. division for $405 million.

Allegheny's second-lien bank debt rose to 96 bid from 94 5/8 bid, 95 1/8 offered on Friday.

"The action for now in their debt may be over for a little while, but it was quiet and trading was thin," a trader said.

Proceeds from the sale will be used to reduce debt and improve liquidity, as well as to fund the cost of continuing to reduce the company's financial exposure to energy trading, Allegheny said in a press release.

The company added that the sale price is subject to adjustment based on changes in the mark-to-market value at closing and the number of trades to be assumed by J. Aron.

On Friday, the bank debt was unchanged despite news that the company completed a private placement of $300 million convertible trust preferred securities. According to one trader, that announcement was already priced into the bank debt since banks had previously voted on an amendment to the credit facility and knew the deal was coming.

The net proceeds will be used to improve liquidity at Allegheny Energy, help Allegheny Energy Supply meet future collateral requirements and for general corporate purposes.

Payment obligations under the new trust preferred securities are subordinate to the Hagerstown, Md. energy company's existing credit facilities.

Proceeds are being used to refinance a $200 million revolver that was set to expire in November 2004.

Due to the overwhelming demand for new issues, traders expected many companies would reverse flex before the syndication process is done and that was the case with Jostens Inc. Friday.

Jostens flexed down pricing on its five-year $150 million revolver Monday by 25 basis points.

The revolver, already increased in size by $25 million since the launch, now has an interest rate of Libor plus 250 points, a market source said.

The rest of Jostens' new facility has already flexed down 50 basis points to 250 basis points and is made up of a $475 million seven-year term loan B and a $50 million seven-year delayed draw term loan.

On July 8, Jostens launched the $650 million credit facility, which at the time consisted of a $125 million five-year revolver with an interest rate of Libor plus 275 basis points and a $525 million term loan B at Libor plus 300 basis points. Credit Suisse First Boston and Deutsche Bank are leading the deal.

As previously reported, proceeds will be used to help fund the leveraged buyout of Jostens by DLJ Merchant Banking Partners III, LP and affiliated funds, each managed by CSFB Private Equity for cash consideration of approximately $48 per common share. Jostens is currently 88% owned by Investcorp, a global investment group, its co-investors and MidOcean Partners. The transaction is expected to close by Sept. 30, 2003.

Jostens is a Minneapolis provider of school-related affinity products.

"Some issuers are revisiting the market to reprice or refinance existing loans, because of the strong technical levels," a market source said.

Reddy Ice Group Inc.'s new term loan B in the secondary bank loan market on Monday was still "moving somewhat" up to 101 bid, 101¼ offered. The loan, which was originally sold to investors at par, was seen at par ¾ bid on Friday after allocating, breaking and actively trading on Thursday.

Credit Suisse First Boston, Bear Stearns and CIBC are leading the deal, which will be used to help fund the leveraged buyout of the Dallas packaged ice company by Trimaran Capital Partners and Bear Stearns.

But Xerox Corp.'s bank debt was unchanged in response to its earnings release.

Xerox's bank debt "has been around par for a while now," a market source said.

On Monday, Xerox reported a second-quarter profit Monday of $86 million, down 1% from the same period last year but the company said rising equipment sales and cost cutting helped it beat expectations. The earnings for the April-June period amounted to 9 cents per share, compared with net income of $87 million, or 11 cents per share, for the same period last year.

Excluding a one-time charge, Xerox said it had earnings of 14 cents per share, better than the consensus estimate of 12 cents per share.

Xerox had revenue of $3.92 billion, down 1% from $3.95 billion for the same period last year.

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