Crown Cork term loan breaks straddling 101; Interstate Bakeries fall edged on by downgrade

By Sara Rosenberg

New York, Sept. 1 - Crown Cork & Seal Co. Inc. allocated its $625 million credit facility (Ba3/BB) on Wednesday, with the company's term loan B wrapping around 101 on the break. Meanwhile, Interstate Bakeries Corp. continued to weaken as a downgrade from Moody's Investors Service was added to the list of bad news plaguing the company this week.

Crown's $125 million term loan B due 2011 was quoted at par 7/8 bid, 101¼ offered steadily throughout the day as little trading activity was seen on the name from the time it hit the secondary until close, according to a trader.

The term loan, which is priced with an interest rate of Libor plus 225 basis points, was added to the deal earlier this month following pricing of a euro 6.25% first priority senior secured notes offering that was downsized to €350 million from €460 million.

The facility consists of a $200 million revolver with an interest rate of Libor plus 275 basis points, a $200 million euro revolver with an interest rate of Libor plus 275 basis points and a $100 million revolving letter-of-credit facility with an interest rate of Libor plus 275 basis points.

Citigroup, Deutsche and Lehman were the lead banks on the credit facility, which actually closed Wednesday, with Citigroup on the left.

Proceeds from the term loan and the bonds were used to repay the company's existing term loans that mature in 2008. The new revolver replaces the company's existing revolver that was set to mature in 2006.

"This transaction has enabled the company to lock in attractive longer term fixed-rate debt and reduced spreads to Libor on the senior secured credit facilities in what we believe is a rising interest rate environment. Additionally, the company's net U.S. dollar exposure in Europe on its funded debt and its floating-rate debt have been reduced," said Alan W. Rutherford, executive vice president and chief financial officer, in a news release.

"We are extremely pleased that the credit markets have responded to our offer so enthusiastically. Most of the company's near-term debt maturities have been extended to 2010 or beyond, and we have substantially enhanced our long-term liquidity. The terms of the new senior secured credit facility also improve the company's financial and operating flexibility. At the same time, we continue to focus on our strategic goal of generating free cash flow and delevering the balance sheet," Rutherford added in the release.

Crown Cork is a Philadelphia supplier of packaging products.

Interstate hit by downgrade

Interstate Bakeries' bank debt was quoted on the wide side at 91 bid, 94 offered on Wednesday following a downgrade in the paper's rating to Caa1 from B2 by Moody's, according to a trader, who said the paper was only down a point from Tuesday's levels of 92 bid, 95 offered. Another trader had the paper quoted a little tighter at 91½ bid, 93 offered on Wednesday.

However, on Tuesday, a different source had heard of a 96 bid on the bank debt as well as a 97 bid, 97½ offered market being made on the name.

"Ninety six was an old quote," the first trader said in response to that information.

Last week, the company's bank debt was quoted in the low 98s.

There have been a lot of inquiries but not a lot of clarity on Interstate Bakeries' bank debt since the start of this week when the company announced that it missed its Friday deadline for filing its 10-K annual report for the fiscal year ended May 29 with the Securities and Exchange Commission. This is the second time that the company missed its filing deadline. The company had previously received an extension to Friday for the filing because of delays in finalizing its audited financial statements arising from the previously announced investigation of the manner for setting workers' compensation reserves and other reserves.

And now, to make matters worse, Moody's downgraded Interstate Bakeries ratings due to "uncertainty about the company's financial position and liquidity pending effective implementation of the new financial reporting systems and filing of its FY04 10K, combined with continued negative sales and earnings trends and tight liquidity under bank covenants going forward," the rating agency explained.

"The downgrade also takes into account the risks associated with the company's process of significantly restructuring its operations to reduce costs, while, at the same time, operating in a very competitive business environment with weak category demand trends, much better resourced competitors, and tight liquidity," Moody's added.

Interstate Bakeries is a Kansas City, Mo., wholesale baker, known for such famous brand names as Wonder Bread, Hostess Twinkies and Drake's Cakes.

R.H. Donnelley closes

R.H. Donnelley Corp. completed its acquisition of SBC Communications Inc.'s directory publishing business in Illinois and Northwest Indiana for about $1.41 billion in cash, according to a company news release.

To finance the acquisition, R.H. Donnelley got a $2.5925 billion credit facility (Ba3/BB) consisting of a $175 million revolver with an interest rate of Libor plus 200 basis points and a 37.5 basis point undrawn fee, a $699.5 million term loan A with an interest rate of Libor plus 200 basis points and a $1.718 billion term loan B with an interest rate of Libor plus 225 basis points.

Originally, the term loan B was sized at $1.968 billion and the term loan A was sized at $499.5 million but the company opted to downsize the B loan by $250 million and upsize the A loan by $200 million to lower its cost of capital. The $50 million reduction in term debt following these changes was a result of the company not needing those funds.

Basically, through this transaction, the company gained about $1.4 billion in incremental bank debt, extended the maturity of the term loan A and the term loan B by one year each, decreased pricing on the term loan A from Libor plus 225 basis points and removed the fixed charges covenant that used to be found in the existing credit agreement.

JPMorgan and Bear Stearns were the lead banks on the equally underwritten deal, with JPMorgan listed on the left. Deutsche Bank was also a lead on the deal. Citigroup and Goldman Sachs acted as co-documentation agents.

R.H. Donnelley is a Cary, N.C., yellow pages publisher and directional media company.

Phillips Health closes

ACI Capital Co. Inc. and American Securities Capital Partners LLC completed the acquisition of a majority of the assets of Phillips Health LLC in partnership with the company's existing management, according to a company news release.

To help fund the transaction, Phillips Health got a new $120 million credit facility consisting of a $10 million five-year revolver with an interest rate of Libor plus 275 basis points (B1/B), a $90 million six-year term loan B with an interest rate of Libor plus 300 basis points (B1/B) and a $20 million seven-year second-lien term loan with an interest rate of Libor plus 650 basis points (B3/CCC+).

JPMorgan was the lead bank on the deal.

Phillips Health was a unit of Potomac, Md.-based Phillips International Inc. that provides newsletters and online resources related to the nutritional supplement industry.

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