Movie Gallery rises; LCDX slide progresses; R.J. O'Brien ups pricing, adds discounts

By Sara Rosenberg

New York, July 5 - Movie Gallery Inc.'s first-lien term loan B and second-lien term loan actually headed higher as investors continued to digest the company's recent covenant-related and strategic alternatives news.

Also in trading, LCDX continued its downward spiral, with levels hitting a new low during the Thursday session.

Moving to primary news, R.J. O'Brien & Associates Inc. increased pricing on its first- and second-lien term loans, while also adding original issue discounts to the two tranches.

Movie Gallery's bank debt was a touch stronger during Thursday's quiet trading session now that lenders have had a few days to mull over the covenant non-compliance and evaluation of alternatives news that emerged at the start of this week, according to a trader.

The first-lien term loan B was quoted at 90 bid, 92 offered, up from previous levels of 87 bid, 89 offered, the trader said.

In addition, the second-lien term loan was quoted at 56 bid, 61 offered, up from a previous level of 50 bid, 60 offered, the trader continued.

Late Monday, Movie Gallery announced that it was not able to meet the financial covenants contained in its senior facility for the fiscal quarter ended July 1 due to significantly softer-than-expected second-quarter results.

The company is talking to its lenders about a way to remedy the defaults, including possibly seeking a waiver, amendment, forbearance or similar agreement.

Movie Gallery has fully drawn the remaining availability under its revolver and currently has liquidity consisting of about $50 million of cash on hand.

The Dothan, Ala.-based video rental company also said that it is considering strategic alternatives, including asset divestitures, recapitalizations, alliances with strategic partners and a sale to or merger with a third party.

Bill Kosturos, a managing director at restructuring and corporate advisory firm Alvarez & Marsal, has resumed his role at the company as chief restructuring officer, and Lazard Freres & Co. LLC was hired to serve as an independent financial adviser.

Lastly, the company said that it will continue to take actions to conserve cash and improve profitability, including accelerating the closure of unprofitable stores, consolidating stores in certain markets, realigning its cost structure to better reflect its reduced size, and seeking a more competitive capital structure.

In reaction to this news, Standard & Poor's cut the company's corporate credit rating to CCC+ from B- on Thursday.

And, this past Tuesday, Moody's Investors Service downgraded Movie Gallery's corporate family rating to Caa3 from Caa1, revolver to B2 from B1, synthetic letter-of-credit facility and first-lien term loan to Caa2 from B2, and second-lien term loan to Caa3 from Caa1.

Moody's said that the ratings are on review for possible further downgrade due to the fluid nature of the current situation and the high likelihood of a distressed exchange, restructuring or bankruptcy filing.

LCDX trades down again

In more secondary news, LCDX was once again softer on a day-over-day basis and the index even made it to an all-time new low early on before regaining some of that lost ground, according to a trader.

The index went out on Thursday at 97.10 bid, 97.20 offered, down from opening levels of 97.25 bid, 97.30 offered, the trader said.

However, during trading hours, the index went down to a new low of 97.05 bid, 97.15 offered, the trader remarked.

"It came back a little bit toward the end of the day with stocks," the trader explained.

On Thursday, Nasdaq ended up 11.70 points, or 0.44%, Dow Jones Industrial Average ended down 11.46 points, or 0.08%, S&P 500 ended up 0.53 points, or 0.03%, and NYSE was down 6.37 points, or 0.06%.

"It was much more quiet than usual but there was more volume than you would think," the trader added about the post-holiday session.

R.J. flexes, adds OID

Switching to the primary, R.J. O'Brien & Associates flexed pricing higher on its institutional loan and added an original issue discount to the paper, according to a market source.

The $385 million seven-year first-lien term loan (B2/B-) is now being talked at Libor plus 275 basis points, up from original talk at launch of Libor plus 250 bps, and this tranche is now being sold to investors at a discount of 99 as opposed to at par, the source said.

Meanwhile, the $150 million eight-year second-lien term loan (B3/CCC) is now being talked at Libor plus 650 bps, up from original talk of Libor plus 600 bps, and this paper is also now being issued at 99 as opposed to at par, the source added.

The second-lien term loan carries call protection of 102 in year one and 101 in year two.

R.J. O'Brien's $585 million senior secured credit facility also includes a $50 million six-year revolver (B2/B-).

Earlier on in syndication, the company added a total leverage ratio to the first- and second-lien debt, removed the super-priority from the revolver and eliminated the PIK toggle feature on the second lien.

The total leverage covenant under the revolver and first-lien term loan opens at 9.25 times, with steps down by one turn annually starting Dec. 31, 2008 until 2011, when the test hits 5.0 times.

And, the total leverage covenant under the second-lien term loan is set a quarter of a turn back from the first-lien ratio, meaning it opens at 9.5 times.

Under the PIK option that was removed from the second-lien term loan, pricing would have stepped up by 75 bps if PIK were elected.

Lehman Brothers and Deutsche Bank are the joint lead arrangers on the $585 million senior secured deal.

Proceeds will be used to help fund the acquisition of the company by Spectrum Equity Investors and Technology Crossover Ventures. The O'Brien family will retain a substantial minority ownership in the company.

R.J. O'Brien is a Chicago-based futures brokerage firm.

Clearwire closes

Clearwire Corp. closed on its $1 billion senior secured term loan, according to a company news release.

The term loan, a portion of which is delayed draw, is priced at Libor plus 600 bps.

The delayed-draw portion is expected to be funded in about 45 days.

Morgan Stanley, Merrill Lynch, JPMorgan and Citigroup acted as the lead banks on the deal, with Morgan Stanley the left lead.

Proceeds will be used to refinance the company's existing debt and to expand its operations.

Clearwire is a Kirkland, Wash., provider of wireless broadband services and equipment.

Maher closes

Rreef Infrastructure completed its acquisition of Maher Terminals, according to a company news release.

To help fund the transaction, Maher got a new $1.23 billion credit facility consisting of a $20 million revolver priced at Libor plus 150 bps, a $260 million capital expenditures facility priced at Libor plus 150 bps, an $800 million first-lien term loan priced at Libor plus 150 bps and a $150 million second-lien term loan priced at Libor plus 375 bps.

RBC Capital acted as the lead bank on the deal.

Maher is a Berkeley Heights, N.J., operator of port terminal facilities in Port Elizabeth and Port of Prince Rupert.

Thomson Learning closes

Apax Partners and Omers Capital Partners completed their acquisition of Thomson Learning from Thomson Corp., according to a news release.

To help fund the buyout, Thomson Learning got a new $3.74 billion senior credit facility consisting of a $3.44 billion seven-year term loan B (B1/B+) priced at Libor plus 275 bps, with 101 soft call protection and an original issue discount of 99, and a $300 million six-year revolver (B1/B+) priced at Libor plus 275 bps.

During syndication, pricing on the term loan B flexed up from Libor plus 250 bps, the soft call was added and the original issue discount was added, with original talk being that it could range from 99 to 991/4, and pricing on the revolver was flexed up from Libor plus 225 bps when its super-priority status was removed.

The facility has a senior secured leverage ratio covenant of 8.25 times, which was added during syndication as well.

RBS Securities, JPMorgan, Citigroup and UBS acted as the lead arrangers on the deal, with RBS as administrative agent, JPMorgan as syndication agent, and Citi and UBS as co-documentation agents.

Thomson Learning is a Stamford, Conn.-based higher education, careers and library reference company.

Nelson Education closes

Omers Capital Partners and Apax Partners completed their acquisition of Nelson Education from Thomson Corp., according to a news release.

To help fund the transaction, Nelson got a new C$561.5 million credit facility consisting of a C$50 million U.S. dollar equivalent revolver (Ba3/BB-), a C$330 million U.S. dollar equivalent first-lien term loan (Ba3/BB-) priced at Libor plus 250 bps with an original issue discount of 99¾ and a C$181.5 million U.S. dollar equivalent second-lien term loan (Caa1/CCC+) priced at Libor plus 575 bps, with call protection of 102 in year one and 101 in year, and an original issue discount of 993/4.

During syndication, the revolver lost its super-priority status, the first-lien term loan was flexed up from Libor plus 225 bps, the second-lien term loan was flexed up from Libor plus 525 bps, the original issue discounts were added to the two term loan tranches, and the PIK toggle option under the second-lien term loan was eliminated.

In addition, during syndication, a maximum senior leverage covenant was added that starts out at 7.5 times to the revolver and first-lien term loan, with cross-defaults with the second-lien term loan.

RBC Capital acted as the lead bank on the deal.

Nelson Education is a Scarborough, Ont., provider of books and online resources for the educational market in Canada.

© 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.