Blockbuster, Movie Gallery off on downgrades; Workflow ups spreads again; El Pollo Loco upsizes

By Sara Rosenberg

New York, Nov. 14 - Blockbuster Inc. and Movie Gallery Inc. saw their term loan Bs fall a touch in Monday's relatively quiet trading session as investors reacted to Standard & Poor's recent downgrade of both companies' ratings.

Meanwhile, in primary happenings, Workflow Management Inc. increased pricing for a second time on its credit facility, this time upping spreads by 25 basis points across the board. And El Pollo Loco Inc. upsized its credit facility by a minimal amount as it downsized its bond offering.

The term loan Bs of both Blockbuster and Movie Gallery traded down by about a quarter of a point on Monday in reaction to S&P's decision to downgrade the ratings of both companies primarily on sector issues, according to a trader.

On Friday, S&P cut Blockbuster's and Movie Gallery's bank loan ratings to B- from B, with negative outlooks.

For Blockbuster, S&P said that the downgrade reflected the continuation of extremely weak operating performance due to poor industry fundamentals, the company's decision not to charge late fees and the high cost related to the rollout of its in-store and online subscription programs.

For Movie Gallery, S&P said that the downgrade reflected growing concern that the company's operating results will continue to be pressured by weak industry fundamentals.

"I think a lot of people saw it coming," the trader said. "And, S&P talked about sector problems, not really credit specific."

But the downgrades, whether expected or not, did manage to pressure the bank debt a bit as both Blockbuster and Movie Gallery watched their term loan Bs close out the session lower with quotes of 97 1/8 bid, 97 5/8 offered.

There was, however, "surprisingly little trading" in the paper, the trader added.

Blockbuster is a Dallas-based provider of in-home movie and game entertainment. Movie Gallery is a Dothan, Ala.-based video rental company.

Key Energy rises on update

Key Energy Services Inc.'s bank debt came up by about an eighth of a point as the company provided an operational and financial update, including its October rig and trucking hours and unaudited selected financial data for the quarter ended Sept. 30, according to a trader.

The paper was quoted at 101 5/8 bid, 102 offered, the trader added.

For the quarter ended Sept. 30, unaudited total revenue was about $309 million, compared with last year's Sept. 30 unaudited quarter of about $259 million.

As has been previously disclosed, the company is finalizing supporting documentation for accounting treatments in its restated financial statements. The company is unable at this time to predict when the documentation process will be complete, when its independent auditors will complete their audit of the financial statements for the fiscal year ended Dec. 31, 2003 and prior periods, or when the 2003 10-K will be filed.

Key Energy is a Midland, Texas, rig-based well service company.

Workflow flexes up

Workflow flexed pricing higher by 25 basis points across its entire credit facility complex, with the expectation being that this will be the final round of changes necessary to fill out the books by Friday's commitment deadline, according to a market source.

The $275 million five-year first-lien term loan B (B2/BB-) and the $40 million five-year revolver (B2/BB-) are now priced with an interest rate of Libor plus 400 basis points, up from most recent price talk of Libor plus 375 basis points, the source said. Earlier this month, both of these first-lien tranches were flexed up from original price talk at launch of Libor plus 300 basis points.

The $110 million seven-year second-lien term loan (B3/B) is now priced with an interest rate of Libor plus 825 basis points, up from most recent price talk of Libor plus 800 basis points, the source continued. Earlier this month, this second-lien tranche was flexed up from original price talk at launch of Libor plus 700 basis points.

At the time that the first round of changes were made to the deal, the first-lien term loan was downsized from $300 million, the second-lien term loan was downsized from $115 million, 101 soft call protection for one year was added to the first-lien term loan, the second-lien term loan gained call protection of 103 in year one, 102 in year two and 101 in year three, and an original issue discount price of 99½ (down from par) was added to both the first- and the second-lien term loans.

When those original changes were made - resulting in a total credit facility size of $425 million as opposed to $455 million - a $30 million 71/4-year holdco mezzanine debt tranche was added at 12% plus 4% PIK.

Credit Suisse First Boston, National City Bank and Royal Bank of Canada are joint lead arrangers on the deal.

The revolver contains a 50 basis point commitment fee.

Proceeds from the new debt will be used to fund the acquisition of Relizon Co., a North American supplier of business process solutions for document outsourcing, billing and marketing.

Workflow, a portfolio company of Perseus LLC, is a New York-based full-service print and promotional products provider.

El Pollo Loco upsizes

El Pollo Loco Inc. increased the size of its term loan B by $2.5 million to $102.5 million after it downsized its proposed senior notes offering, according to a market source.

Price talk on the term loan remained at Libor plus 275 basis points.

On Monday, the company's bond offering was decreased to $125 million from $150 million. Furthermore, a $22.5 million tranche of notes that will issued at the holding company level was added to the capital structure.

El Pollo Loco's now $127.5 million credit facility (B3/B+) also contains a $25 million revolver talked at Libor plus 275 basis points.

Merrill Lynch and Bank of America are the lead banks on the credit facility, with Merrill the left lead.

Proceeds from the new financing will be used to help fund the leveraged buyout of the company by Trimaran Capital Partners from American Securities Capital Partners LP.

El Pollo Loco is an Irvine, Calif., quick-service restaurant chain specializing in Mexican-style chicken dishes.

AAi.FosterGrant ups spreads, adds OIDs

AAi.FosterGrant Inc. increased pricing on its first- and second-lien term loans, while at the same time adding original issue discounts, in an effort to appease investors over the non-payment of call protection to existing lenders, according to a buyside source.

The $150 million term loan B (B2) is now talked at Libor plus 350 basis points, compared with original price talk of Libor plus 275 basis points, the source said. Furthermore, 101 soft call protection for one year was added to the tranche. And, investors are now being offered the paper at 991/2, down from the original offer price of par.

As for the $50 million second-lien term loan (B3), it is now talked at Libor plus 700 basis points compared with original price talk at launch of Libor plus 625 basis points, the source continued. And, an original issue discount of 100 basis points was incorporated into the deal, as opposed to the originally proposed offer price of par.

The second-lien term loan contains, and has since launch, call protection of 102 in year one and 101 in year two.

The $215 million credit facility, which also contains a $15 million revolver (B2), will be used for a dividend recapitalization.

Since the deal first hit the market, it has been somewhat overshadowed by a dispute over the payment of soft call protection to existing lenders. Under the existing term loan B, lenders are entitled to 101 soft call protection in the case of a refinancing. However, lenders were being told that they may not - and now that they definitely will not - be getting paid down at the 101 call protection premium because the new credit facility is part of a recapitalization, not a refinancing.

With this decision to not pay the call premium, some investors are not sure just how well the new deal will fare even with all the "juicy" tweaks.

"I'm not sure if they'll get it done or not," the source said. And, previously, another source questioned as to why anyone would want to get involved in the new transaction if call protection wasn't paid to existing lenders.

JPMorgan and General Electric Capital Corp. are the lead banks on the deal, with JPMorgan the left lead.

AAi.FosterGrant is a Smithfield, R.I., eyewear and jewelry company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.