Warnaco cuts term loan spread; Pep Boys breaks atop 101; Kodak rises on earnings

By Sara Rosenberg

New York, Jan. 30 - In primary happenings, The Warnaco Group Inc. reverse flexed pricing on its term loan B on Monday. Meanwhile, in the secondary, The Pep Boys - Manny, Moe & Jack saw its term loan start trading in the mid-101 context and Eastman Kodak Co. saw levels rise after the release of earnings numbers.

Warnaco reduced pricing on its $180 million seven-year term loan B (Ba2/BB) by 25 basis points due to strong demand, according to a market source.

The term loan B is now priced with an interest rate of Libor plus 150 basis points, down from original price talk at launch of Libor plus 175 basis points, the source said.

No other changes were made to the term loan, the source added.

Citigroup Global Markets Inc. and JPMorgan are the lead banks on the deal, with Citi the left lead.

Proceeds from the term loan B will be used to help fund the purchase of Calvin Klein licenses in Europe and Asia.

Under the acquisition agreement, Warnaco will purchase 100% of the shares of the companies that operate the licenses and related wholesale and retail businesses of Calvin Klein jeans and accessories in Europe and Asia and the CK Calvin Klein "bridge" line of sportswear and accessories in Europe from Fingen SPA for €240 million.

The transaction is expected to close in the first quarter of 2006 upon receipt of regulatory approval and satisfaction of certain other closing conditions.

Warnaco is a New York-based intimate apparel, sportswear and swimwear company.

Pep Boys frees to trade

Pep Boys' $200 million senior secured term loan (Ba2/B+) due Jan. 27, 2011 started trading in the secondary on Monday, with levels quoted at 101¼ bid, 101¾ offered, according to a trader.

The term loan is priced with an interest rate of Libor plus 300 basis points.

Wachovia Capital Markets LLC acted as the lead bank on the deal that contains a $125 million accordion feature.

Security for the loan is some of the company's real estate.

Amortization is 1% per year until maturity.

There are no ongoing operating performance covenant requirements under the loan as long as availability under the company's existing $357.5 million revolving credit facility remains above $50 million.

Proceeds from the term loan, which closed last week, were used to satisfy and discharge $43 million and $100 million in outstanding medium-term notes that mature in 2006 and to reduce borrowings under the company's revolver.

Pep Boys is a Philadelphia-based automotive aftermarket retail and service chain.

Kodak up on numbers

Kodak's term loan gained about a quarter of a point to a half a point in trading on Monday after the company released fourth-quarter and full-year earnings numbers, according to traders.

The term loan closed the session quoted at par 5/8 bid, 101 1/8 offered and saw active trading volume in the morning hours before settling down to light volume in the afternoon, one trader said.

However, a second trader had the term loan closing the session at even higher levels of 101 bid, 101¼ offered.

For the fourth quarter, revenue rose 12% led by a 45% increase in the sale of digital products and services, and the company reported a loss of $52 million, or $0.18 per share, compared with a loss of $59 million, or $0.20 per share, in the year-ago period. The company's fourth-quarter loss from continuing operations, before interest, other income, net and income taxes was $162 million, compared with a loss of $236 million in the year-ago quarter.

The fourth-quarter loss largely stems from $283 million in after-tax restructuring charges, partially offset by the previously announced tax audit settlement between the company and the Internal Revenue Service that resulted in the reversal of certain tax accruals totaling $243 million, the company explained in a news release.

For the year, sales were $14.268 billion, up 6% from $13.517 billion in 2004, and reported net loss totaled $1.371 billion, or $4.76 per share, compared with net earnings of $556 million, or $1.94 per share, in 2004.

The full-year loss largely stemmed from a $1.1 billion non-cash charge in 2005 to record a valuation allowance against the net deferred tax assets in the United States, the year-over-year increase in restructuring charges of $245 million, a year-over-year decrease in earnings from discontinued operations of $325 million and a charge for a cumulative effect of an accounting change of $57 million in 2005, the release explained.

As for 2006, the company expects digital revenue growth between 16% and 22%, with total revenue growth between negative 2% and a positive 4%. The company also expects total earnings from operations of a negative $900 million to a negative $1.1 billion. The loss from operations range is largely being driven by ongoing restructuring actions.

Also on Monday, Kodak announced that chief financial officer and executive vice president, Robert H. Brust, plans to retire from the company when his employment contract expires at the end of January 2007.

The company has retained Heidrick & Struggles to conduct a search for a new CFO.

Kodak is a Rochester, N.Y.-based digital imaging products, services and solutions company.

El Paso rises in trading

El Paso Corp.'s bank debt also saw some positive momentum during Monday's session, with levels rising by three eights of a point to 101 bid, 101¼ offered, according to a trader.

No specific reason was given for the bank debt's improved performance; however, the secondary loan market was said to have a good tone to it despite relatively light volume as peoples' focus was steered away by Tuesday's upcoming Federal Reserve policy meeting, various traders explained.

El Paso is a Houston-based provider of natural gas and related products in North America.

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