Blockbuster, Movie Gallery trade up; United Central breaks; J. Crew sets talk, nets orders

By Sara Rosenberg

New York, April 27 - Blockbuster Inc. and Movie Gallery Inc. both saw term loan B trading levels strengthen during Thursday's market hours as Blockbuster released solid financial numbers, giving Movie Gallery investors an optimistic attitude.

Also in trading, United Central Industrial Supply Co. LLC hit the secondary with term loan levels wrapping around the 101-type context.

In the primary, J. Crew Operating Corp. came out with price talk on its senior secured term loan as the deal was presented to lenders with a bank meeting on Thursday that apparently went pretty well as some orders were placed before the day was through.

Blockbuster's term loan B headed up by about a point in trading as the company announced first-quarter 2006 results that showed a significant year-over-year improvement in profitability and cash flow, according to a trader.

On Thursday morning, the company announced financial results for the first quarter that included a net loss of $1.9 million, or $0.03 per common share, an improvement of $55.6 million as compared with the net loss of $57.5 million, or $0.31 per common share, for the first quarter of 2005.

Adjusted net income for the first quarter increased to $13 million, or $0.05 per diluted common share, from an adjusted net loss of $48.6 million, or $0.26 per common share, for the first quarter of 2005.

Revenues for the first quarter declined 7.7% to $1.43 billion from $1.55 billion for the first quarter of last year. But, these decreases were partially offset by an increase in revenues from Blockbuster Online resulting from growth in the subscriber base, which totaled about 1.3 million subscribers at March 31.

Cash flow provided by operating activities increased to $41 million from a $109.7 million deficit for the first quarter of 2005, and free cash flow increased by $181 million to $32.9 million from a negative $148.1 million for the first quarter of 2005.

"Our first-quarter 2006 results reflect the actions we have taken to improve our overall profitability and cash flow," said John Antioco, chairman and chief executive officer, in the release. "For the first time in three years we saw an increase in domestic same-store rental revenues and we believe that our combined in-store and online rental offering will allow us to further increase our market share and outperform the domestic rental industry in 2006."

Following the release of these financials, the Dallas-based movie rental company's term loan B rallied to par bid, par ½ offered from previous levels of 99 bid, 99½ offered, the trader added.

Movie Gallery rises with Blockbuster

Spurred on by Blockbuster's positive momentum, Movie Gallery's term loan B also took a turn for the better, with levels jumping up by about a point as well, according to traders.

The Dothan, Ala.-based movie rental company's bank debt was seen closing the session at 92½ bid, 93½ offered, up from Wednesday's levels of 91½ bid, 93 offered, traders said.

But, even without the Blockbuster financials, Movie Gallery has had somewhat of a stellar week as levels have been inching their way higher on a daily basis, creating a two-plus point gain when compared to the 90 bid, 91½ offered quotes seen at the end of last week.

Positive momentum in the name has been attributed to recent announcements that the company has reached a management agreement with Hilco Real Estate LLC under which a program will be initiated to restructure leases at more than 1,100 existing Movie Gallery and Hollywood Video stores, and that it expects to be in full compliance with the financial covenants for the reporting period ended April 2.

In addition, Movie Gallery's levels were said to be helped by movie rental company Netflix Inc.'s positive first-quarter results that were released early this week.

United Central frees to trade

United Central Industrial Supply's credit facility freed for trading on Thursday, with the $122 million term loan quoted at par ¾ bid, 101¼ offered, according to market sources.

The term loan is priced with an interest rate of Libor plus 300 basis points. The tranche had been launched with price talk of Libor plus 275 to 300 basis points based on a B2 rating, with the ability to get as high as Libor plus 350 basis points on a B3 rating. In the end, the term loan received the B3 rating, but because it was two to three times oversubscribed, the syndicate was able to essentially reverse flex pricing to Libor plus 300 basis points.

United Central's $142 million credit facility also contains a $20 million revolver.

GE Capital Corp. and CIBC World Markets are the lead banks on the deal that will be used to help fund American Securities Capital's purchase of United Central from The Riverside Co.

Pro forma for the transaction, leverage will be 4.25x.

United Central is a Bristol, Va., distributor of products to the mining industry.

Eddie Bauer hits par

Eddie Bauer Holdings Inc.'s term loan reached a level of par bid, up about a quarter of a point on the day as investors continue to buy into the paper so as to take advantage of the recently raised interest rate, according to traders.

"They got their amendment done a week or two ago and it has traded up since," one source said. "[Pricing] was increased to Libor plus 425 from Libor plus 275. It can step up or down from Libor plus 425 depending on rating and the amount of term loan that is outstanding."

On April 13, the Seattle-based retailer that sells casual sportswear and accessories amended its $300 million senior secured term loan, changing the consolidated leverage ratio and the consolidated fixed charge coverage ratio to provide more flexibility, while at the same time granting investors juicier spreads.

More specifically, as a result of the amendment, interest rate spreads under the term loan will be based on a new pricing grid that can range from Libor plus 350 to 425 basis points, based on ratings.

However, on the amendment effective date, the interest rate is increased by 50 basis points until the company pays down its term loan to a total of $225 million using proceeds from asset sale and/or operating cash flow.

Owens-Illinois dips on refi buzz

Owens-Illinois Inc.'s term loan has been making its way down to par prepayment levels as market chatter is that the company has a refinancing transaction in the works, although no such deal has been publicly announced as of yet, according to traders.

The term loan was quoted by some at par bid, par ½ offered and by others at par ¼ bid, par ¾ offered. By comparison, on Wednesday, the bank debt was being quoted at par 3/8 bid, par 7/8 offered.

Owens-Illinois is a Toledo, Ohio, manufacturer of packaging products.

Dole rebounds

Of the three relatively new deals that saw their term loans come under pressure on Wednesday, Dole Food Co. Inc. was the only one able to change its course during Thursday's session, gaining back some of its losses, according to a trader.

Dole's strip of term loan B and funded letter-of-credit facility debt closed the day quoted at par bid, par ¼ offered, up from Wednesday's levels of 99 7/8 bid, par 1/8 offered, the trader said.

Meanwhile, Burlington Coat Factory Warehouse Corp.'s term loan B remained unchanged at 99½ bid, 99¾ offered where it dropped to on Wednesday from previous levels of par 1/8 bid, par 3/8 offered.

And, The Sports Authority Inc.'s term loan B also remained unchanged at 99¾ bid, par 1/8 offered where it dropped to on Wednesday from previous levels of par bid, par ½ offered.

All three of these deals had softened on Wednesday in some sort of investor push back toward institutional loans that during syndication saw pricing cuts, some of which were covenant-light, or are highly leveraged.

"Dole is probably the best credit out of those three. So it bounced back a little today," the trader added.

Burlington is a Burlington, N.J., retailer of branded apparel. Dole is a Westlake Village, Calif., producer and marketer of fresh fruit, fresh vegetables and fresh-cut flowers. And, Sports Authority is an Englewood, Colo., full-line sporting goods retailer.

Charter stronger

Charter Communications Inc.'s term loan headed higher in trading on Thursday as the market in general had a bit of a better tone to it, according to a trader.

The term loan closed the day quoted at par ½ bid, par ¾ offered, up from previous levels of par 3/8 bid, par 5/8 offered, the trader said.

Charter is a St. Louis-based broadband communications company.

J. Crew spread guidance

Switching to the primary, J. Crew released opening price talk of Libor plus 250 basis points on its $285 million senior secured term loan (B2/B) as syndication on the deal officially kicked off with a bank meeting during market hours, according to a source.

And, by the afternoon, the term loan had already received some commitments from interested lenders, the source said.

Goldman Sachs, Bear Stearns and Wachovia are the lead banks on the deal, with Goldman the left lead.

The loan includes a $100 million accordion feature.

Proceeds will be used to repay or redeem the company's 9¾% senior subordinated notes due 2014.

The term loan is no longer conditioned on the completion of an initial public offering of common stock, as was the case last year when the company had syndicated, but was unable to complete, a $295 million term loan. That original term loan deal had been pulled from market because of the postponement of the company's IPO.

J. Crew is a New York-based apparel and accessories retailer.

Sensata closes

Bain Capital LLC completed its acquisition of Sensata Technologies Inc., formerly the Sensors & Controls business of Texas Instruments Inc., for $3 billion, according to a company news release.

To help fund the buyout, Sensata got a new $1.5 billion credit facility (B1/BB-) consisting of a $1.35 billion equivalent term loan B and a $150 million revolver.

The dollar-denominated term loan B tranche is priced with an interest rate of Libor plus 175 basis points. During syndication, pricing on this paper was reverse flexed from original price talk at launch of Libor plus 200 basis points and the total term loan B size was increased by $150 million from $1.2 billion equivalent as the company downsized its bond offering to a dollar equivalent of $750 million from an originally anticipated size of $900 million.

The euro-denominated portion of the term loan B is priced with an interest rate of Euribor plus 200 basis points.

The initial interest rate on the revolver is set at Libor plus 200 basis points.

Morgan Stanley, Bank of America and Goldman Sachs acted as the lead banks on the deal.

Sensata Technologies is an Attleboro, Mass., supplier of engineered sensors and controls to the appliance, climate control, industrial, automotive, lighting and aircraft markets.

Protection One closes

Protection One Inc. closed on its $66.8 million term loan add-on (B2/B+/B+) with an interest rate of Libor plus 250 basis points and the repricing of its existing $233.2 million term loan debt at Libor plus 250 basis points from Libor plus 300 basis points, according to a company news release.

In addition, the maturity date of the term loan was extended by about one year to March 31, 2012.

Proceeds from the add-on will be used to help fund an approximately $75 million one-time special cash dividend. The dividend is payable on May 12.

Bear Stearns acted as the lead bank on the deal for the Lawrence, Kan., electronic security company.

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