Auto sector lifts market; Sleep Innovations ups talk; Twin-Star lays out $170 million deal

By Paul A. Harris

St. Louis, April 3 - The leveraged loan market was generally firmer during an expectedly quiet Passover Tuesday, a trader said.

The source, who spoke to Prospect News in the later part of Tuesday afternoon, recounted that for the previous week the loan market had been opening firm only to drift wider in the afternoon.

On Tuesday, however, prices appeared to be holding in, the trader said, adding that everything was rallying, and the market was generically up an eighth of a point.

Auto LCDS tighter

In the face of headline news that sales slid in March and the unions may be unprepared to make more concessions, a trader saw the loan credit default swaps of Ford Motor Co. and General Motors Corp. tighten significantly Tuesday morning.

The trader said that GM unsecured credit default swaps tightened 35 basis points from the Monday wides, while Ford unsecured CDSs were 40 or more basis points tighter.

In loan CDS, GM and Ford both were 10 basis points tighter on Tuesday morning.

"It hasn't really impacted the cash levels, but LCDS is certainly grinding tighter," the trader commented mid-afternoon, and added that both company's share prices had improved.

Ford announced on Tuesday that its overall sales totaled 264,975 vehicles, down 9% compared with a year ago, which was the company's highest sales month in 2006. However, Ford added, new mid-size cars including the Ford Fusion, Mercury Milan and Lincoln MKZ, and new crossovers including the Ford Edge and Lincoln MKX set monthly sales records in March.

Meanwhile GM announced that its dealers in the U.S. delivered 349,867 vehicles in March, a reduction of 7.7% compared with total sales a year ago.

The sales decreases were due in part to the fact that both automakers voluntarily reduced sales to rental car fleets.

Sleep Innovations ups talk

Sleep Innovations has flexed up the price talk on the first-lien and second-lien tranches of its $325 million credit facility, according to a market source who added that the New Jersey-based sleep products company is also pondering a shift of proceeds to the first-lien piece from the second-lien piece.

The JP Morgan led deal is comprised of a $225 million first-lien term loan which, according to the source, could upsize to $230 million or $235 million. Talk on the first-lien piece has flexed to Libor plus 275 basis points from initial talk of Libor plus 225 to 250 basis points.

Meanwhile Sleep Innovations' second-lien term loan could downsize to $60 million or $65 million from $70 million, according to the source. The price talk on the second-lien piece has flexed to Libor plus 650 basis points from initial talk of Libor plus 550 to 575 basis points.

The credit facility also includes a $30 million revolver.

The West Long Branch, N.J.-based company will use the proceeds to fund an acquisition and refinance existing debt.

Twin-Star lays out pricing

Electric fireplace manufacturer, Twin-Star International, Inc., is in the market with a $170 million credit facility being led by CIBC, according to a market source.

The deal is comprised of an $85 million term loan and an $85 million revolver, both priced at Libor plus 300 basis points. The revolver will be priced on a grid.

A bank meeting was held late last week.

Proceeds will be used to fund the $140 million acquisition of the company by Trivest Partners, leaving leverage at 5.8 times February 2007 EBITDA.

Twin-Star is headquartered in Delray Beach, Fla.

Realogy at 300 bps

Elsewhere Tuesday a market source told Prospect News that the book for Realogy Corp.'s $1.95 billion term loan due 2014 is firming up at Libor plus 300 basis points, the wide end of the revised 275 basis points to 300 basis points price talk.

JPMorgan, Credit Suisse, Bear Stearns and Citigroup are the bookrunners for the LBO deal from the Parsippany, N.J., real estate franchisor.

A market source recounted that the term loan initially came with talk of Libor plus 225 to 255 basis points, and added that until Tuesday morning the deal had gone quiet for over a week.

The overall $4.445 billion credit facility also includes a $1.22 billion delayed-draw term loan due 2014 that would be available to fund purchases of the company's notes if necessary. In addition the deal features a $525 million 6.5-year synthetic letter-of-credit facility and a $750 million revolver.

Meanwhile on Tuesday price talk and covenant changes surfaced on Realogy's massive $3.15 billion multi-tranche junk bond deal.

Among the four tranches, the seven-year floating-rate notes are talked at Libor plus 525 to 550 basis points.

There were also more restrictive changes to the debt test and restricted payments test covenants, according to a market source, who added that the leverage threshold for the credit facility carveout changed to the greater of $3.25 billion and 4.25-times leverage from the greater of $3.25 billion and 4.75-times leverage.

JP Morgan, Credit Suisse, Bear Stearns and Citigroup are joint bookrunners for the bonds.

A trader who is active in both bank loans and bonds said that Realogy may be struggling a little, but added that the financings will "get done."

"People are going to buy it because it's just the cheapest thing in the market right now," the trader said.

The source conceded that the negative headline news impacting the sector might be blamed for higher price talk on the loans and tighter restrictions on the bond covenants.

"But they didn't exactly overwhelm the market with what they put in for equity," the trader said, adding that interest coverage on the loan is only 1.3 times.

"They're expecting home prices to rebound next year," the source added.

"I don't think anybody sees that."

Subprime shadow

Market sources allowed that the bad news that has dogged the home building sector may offer clues as to why investors seem to be seeking more security and a bigger pop for Realogy loan paper and bonds.

Apart from the homebuilder space, however, the market continues to exhibit vitality.

"People are more cautious because of what is going on in the subprime mortgage sector," an institutional investor said on Tuesday morning.

"But the reality is the leveraged loan market is a highly liquid market.

"There has been a little more pushback in repricings. But it has achieved mixed results.

"And there has been no impact in new issues."

Celanese closes

In follow up news, Celanese Corp. said that it completed its $3.678 billion credit facility (Ba3/BB-) on Monday.

The facility includes a $2.28 billion term loan B due 2014 at Libor plus 175 bps with a step down to Libor plus 150 bps when total net debt to adjusted EBITDA is less than or equal to 2.25 times; a €400 million term loan B due 2014 at Euribor plus 175 bps, with a step down to Euribor plus 150 bps when total net debt to adjusted EBITDA is less than or equal to 2.25 times; a $650 million revolver due 2013 at Libor plus 150 bps; and a $228 million credit-linked revolving letter-of-credit facility due 2014 at Libor plus 175 bps, with a step down to Libor plus 150 bps when total net debt to adjusted EBITDA is less than or equal to 2.25 times.

The new facility was used to retire Celanese's existing $2.45 billion facility and to fund a tender for various series of notes.

The Dallas-based hybrid chemical company used Merrill Lynch and Deutsche Bank as lead arrangers for the new facility.

Knology closes

Knology, Inc. announced Tuesday that it completed a $580 million credit facility (B2/B) as part of its acquisition of PrairieWave Communications.

The West Point, Ga., provider of interactive communications and entertainment services obtained a $555 million five-year term loan B priced Libor plus 225 bps. The loan has a delayed-draw ticking fee of 50 bps from May 1 to June 30 and then half the coupon starting July 1. In addition to helping fund the $255 million acquisition, proceeds were used to refinance the company's existing first- and second-lien facilities.

The new bank debt also includes a $25 million five-year revolver at Libor plus 250 bps that is not being used for the acquisition or refinancing.

Credit Suisse was lead arranger with Jefferies & Co. as syndication agent.

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