Herbalife sees good indications from prospective lenders; GenCorp basically full on rollover

By Sara Rosenberg

New York, Nov. 11 - Herbalife Ltd.'s $225 million credit facility has received a lot of investor interest already as people are impressed with the company's low leverage multiples, cash flow generation and ratings. Meanwhile, GenCorp Inc.'s $175 million facility is pretty much done on existing lenders recommitting to this new deal.

The Herbalife facility, which launched via a bank meeting on Tuesday, consists of a $25 million revolver talked at Libor plus 200 basis points and a $200 million term loan talked at Libor plus 225 basis points, a source said.

"I'm not sure if there are orders in already or it's just people circling back, indications, but there's interest and it's going very, very well," the source said. "There's very low leverage. Total pro forma debt for the bank deal and IPO is 2.2x and bank debt is right around 1x.

"The company generates a lot of free cash flow. People feel it's a safe investment," the source continued.

"And, once the IPO gets consummated, S&P bumps its rating up to BB flat and Moody's put them on positive watch.

"People are viewing it very favorably," the source concluded.

Earlier this week, both Moody's and Standard & Poor's released ratings on Herbalife's proposed credit facility.

Moody's rated the deal at Ba3 with a positive outlook saying that the outlook reflects the benefits of the company's proposed recapitalization, which will significantly reduce debt and interest expense and reposition the capital structure for future deleveraging through bank debt repayment.

S&P rated the deal at BB- with positive implications but said that upon completion of the recapitalization, which will result in a strengthened financial profile, S&P expects to raise the credit rating by one notch to BB with a stable outlook.

Commitments from lenders are due on Nov. 23.

Morgan Stanley & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. are joint lead arrangers and joint bookrunners on the deal, with Morgan Stanley left lead.

Proceeds from the credit facility will be used to refinance debt.

Closing on the credit facility will occur on conjunction with closing on the initial public offering, which is expected to happen around mid-December.

The company plans to sell up to $345 million of common stock in its initial public offering, and expects to receive net proceeds of $278.4 million from the offering, or $321.2 million if the greenshoe is exercised in full.

As part of the IPO, Century City, Calif.-based Herbalife, a marketer of weight management and nutrition products, will tender for Herbalife International's $160 million 11¾% senior subordinated notes, redeem 40% of parent company WH Holdings' $275 million 9½% senior notes due 2011, and replace Herbalife International's $205 million senior credit facility. Repaying the existing loan is expected to require $66.7 million.

In addition, the company will pay a $200 million special cash dividend to its current shareholders.

GenCorp gobbled by rollover

GenCorp's credit facility has been filling out quickly since launching this past Monday as existing lenders have opted to roll over their commitments into this new, slightly smaller in terms of the amount of institutional paper available, deal.

The facility consists of a $75 million revolver, a $25 million term loan talked at Libor plus 300 to 325 basis points, and a $75 million six-year credit-linked institutional letter-of-credit facility talked at Libor plus 300 to 325 basis points.

"Pretty much everyone in the deal has already rolled their positions into the new deal," a fund manager told Prospect News. "As of Aug. 31, they had $28½ million outstanding under their term loan A and $113.6 million outstanding under the originally $115 million sized term loan B. So, [rollover] basically eats up the entire deal.

"They're talked Libor plus 300 to 325 but with the deal filling out so quickly they may be able to push it to a 275 type spread."

Wachovia is the lead bank on the deal that will be use to refinance debt.

GenCorp is a Rancho Cordova, Calif., technology-based manufacturer of aerospace and defense products and systems.

Delta subscribed by hand-picked group

Delta Air Lines Inc.'s $800 million credit facility is well on its way to oversubscription, according to a market source, as a select group of lenders were picked to participate in the syndication of the deal.

"They went out to a couple of banks to round out the revolver," the source said. "The institutional piece basically went out to hedge funds and some people who knew the credit, existing Delta lenders. It wasn't a typical situation where they went out to a huge group of funds. Not like Northwest where they went out to everyone."

Delta's $500 million three-year senior secured credit facility, which launched Tuesday, consists of a $300 million revolver talked at Libor plus 400 basis points and a $200 million term loan talked at Libor plus 600 basis points.

By comparison, Northwest Airlines Inc. is in-market with a $975 million credit facility (B1/B+) led by JPMorgan and Citigroup consisting of a $675 million five-year term loan A talked at Libor plus 550 basis points and a $300 million six-year term loan B talked at Libor plus 750 basis points. Both term loans contain call protection of 103 in year one, 102 in year two and 101 in year three.

General Electric Capital Corp. is the sole lead arranger on Delta's facility.

The Atlanta air transportation company is getting the new deal in connection with its out-of-court restructuring plan.

Delta's revolver is secured by some accounts receivable, and the term loan is secured by the remaining unencumbered assets.

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