Beverly Enterprises receives positive feedback on security, pricing and divestiture strategy

By Sara Rosenberg

New York, Sept. 22 - Beverly Enterprises, Inc.'s bank meeting was well attended, with the syndicate receiving some initial positive feedback as well as some initial commitments on the deal, partly due to a strong collateral package with collateral coverage of over 2½ times, relatively fair pricing and the company's efforts to streamline its portfolio.

The $225 million senior secured credit facility (Ba3/BB) consists of a $75 million revolver with an interest rate of Libor plus 325 basis points and a $150 million term loan with an interest rate of Libor plus 350 basis points. The term loan is being offered at 993/4. A $15 million commitment for the revolver receives 150 basis points upfront "plus 5% of capital markets economics", according to a syndicate source.

For the ratings, "Libor plus 350 is a fair spread for a company in today's market," a source regarding pricing on the deal.

Another plus is the company's success in selling some assets that could have potentially caused problems, according to the source. For example, on June 30, Beverly announced the all-cash sale of 18 skilled nursing facilities and two assisted living centers as part of the strategy to divest nursing homes that account for a disproportionately high share of patient care liability costs. Of the net cash proceeds from that sale, $73.5 million was used to pay facility-related debt and to purchase all remaining assets under the company's off-balance sheet lease arrangement. The debt reduction represented more than 10% of the company's total debt, on and off-balance sheet.

One more example came a few days later on July 1 when the company announced the cash sale of CareFocus, a network of 20 licensed home care agencies in North Carolina, saying that the sale was a result of the business unit not aligning with Beverly's long-term strategic plan.

The company plans to use proceeds from the credit facility, combined with proceeds from a proposed $100 million subordinated notes offering, to pay existing indebtedness, including $180 million of its senior notes due 2006, according to a news release.

Commitments are due in about two weeks.

Lehman Brothers is the lead bank on the deal for the Fort Smith, Ark. provider of healthcare services to the elderly.

IESI Corp.'s $350 million credit facility, which launched this past Friday, is moving along nicely, leaving the lead bank "hopeful and optimistic that it will go well," a syndicate source told Prospect News on Monday.

The facility consists of a $175 million five-year revolver with an interest rate of Libor plus 325 basis points and a $175 million seven-year term loan B with an interest rate of Libor plus 350 basis points. The term loan B is being offered to investors at par.

As of Monday, a few people had already committed to the institutional tranche as the market appeared to be receiving the deal well, according to the source. "It only happened on Friday so people are still taking time to review it," the source added.

Commitments on the deal are due in about two weeks.

Fleet is the sole lead arranger and administrative agent. LaSalle is the syndication agent.

Proceeds will be used by the Fort Worth, Tex. non-hazardous solid waste management company for acquisition and refinancing purposes.

Meanwhile, despite Cinram International Inc.'s flex up and change in upfront fees, some investors remain skeptical about the deal's ability to get done at the newest levels.

"Our view is it should not have been an all-senior transaction. There's too much senior debt. It either needs some mezzanine financing or a portion needs to be priced like mezzanine financing. We'd be looking for something like 10% on a portion of the debt. I think people are looking for significantly higher pricing. They're not even in the ballpark. I don't think it will get done here either," one buy-side source said.

In a Banc of America Securities syndicated finance report, the question of "what makes an issuer struggle in this bull market?" was raised, with Cinram cited as one of the struggling deals. The report went on to offer credit concerns and sector heaviness as reasons behind some of the troubled deals.

"Regardless of market technicals, credit remains king. Issuers with difficult credit stories may face a reluctant investor base," the report said.

"Many high yield loan investors are already heavily concentrated in certain industries. YTD, healthcare, broadcasting and energy have been some of the most active sectors by dollar volume. Issuers in very active sectors may find the market more difficult to navigate," the report added.

Furthermore, the report pointed out the previously mentioned issue of an all-senior transaction.

"Lately, a number of issuers have incorporated all-senior structures (senior secured and senior unsecured) instead of senior/senior-subordinated structures, to minimize financing costs. Of six issuers that recently utilized this structure, the average senior secured leverage was 1.8x and average total leverage (all senior) was 4.0x. The average relative value between loans and bonds in these cases was 176 bps, a quarter of a point lower than the traditional 200 bps difference between senior secured and senior subordinated debt," the report said.

Last week, Cinram upped pricing on its $900 million six-year term loan B by 50 basis points to Libor plus 375 basis points and offered investors 50 basis points upfront as opposed to the original offer price of par, according to the source.

Originally the institutional tranche was talked at Libor plus 350 basis points, but came 25 basis points inside price talk when it launched right after Labor Day.

At that time, there were mixed reactions to the deal floating around the marketplace, with one source citing piracy of DVD's and CD's as a concern and citing the company's generation of steady free cash flow and experienced management as pluses.

The $1.2 billion credit facility (Ba3/BB) also contains a $150 million term loan A with an interest rate of Libor plus 300 basis points and a $150 million revolver with an interest rate of Libor plus 300 basis points. This pro rata portion, which offers a 75 basis points upfront fee for a commitment of $15 million, was reported as being oversubscribed by the retail launch date. The company held the documentation agent and managing agent bank meeting on Aug. 14 in Canada for the pro rata portion of the deal.

Citigroup and Merrill Lynch are joint lead arrangers on the deal, with Citigroup also acting as administrative agent and Merrill acting as syndication agent. Bank One, SG Cowen and GE Capital have signed on to the deal as documentation agents.

Proceeds will be used to fund the acquisition of AOL Time Warner Inc.'s DVD and CD manufacturing and physical distribution businesses for a purchase price of approximately $1.05 billion in cash. The acquisition is expected to close during the fall.

On a stand-alone basis, the acquired businesses would be expected to generate approximately $1.1 billion of revenues and $230 million of EBITDA for the fiscal year ended Nov. 30, 2003, after giving effect, on a pro forma basis, to the pricing reflected in the new supply and physical distribution agreements, according to a news release.

Cinram is a Toronto-based provider of pre-recorded multimedia products and logistic services.

Day International Group Inc. closed on its $155 million senior secured credit facility (B1/B), consisting of a $20 million five-year revolver with an interest rate of Libor plus 375 basis points and a 50 basis points commitment fee, a €26.6 million five-year term loan A with an interest rate of Libor plus 375 basis points and a $105 million six-year term loan B with an interest rate of Libor plus 450 basis points.

Originally, the loan was expected to be sized at $187 million and consist of a $30 million six-year term loan A talked at Libor plus 350 basis points, a $20 million five-year revolver talked at Libor plus 350 basis points, a $105 million six-year term loan B talked at Libor plus 400 basis points and a $32 million five-year delayed draw term loan talked at Libor plus 400 basis points.

Lehman and Bank One acted as co-lead arrangers, and National City acted as documentation agent.

Proceeds are being used to repurchase the company's $100 million 11 1/8% senior unsecured notes due 2005, to repay debt under the existing credit facility and to fund a potential acquisition.

Day is a Dayton, Ohio marketer of products for printing, textile manufacturing and corrugated paper converting.

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