LBO deals drop in trading as market weakens; CDW, Delphi talk surfaces; Goodrich sets final size

By Sara Rosenberg

New York, Jan. 9 - The secondary market in general was heavy on Wednesday, with leveraged buyout financing deals, such as Allison Transmission, First Data Corp., Chrysler Financial Services LLC, Texas Competitive Electric Holdings Co. LLC (TXU) and Alltel Communications Inc., appearing to take the brunt of the hit.

As for LCDX, it actually ended the day higher with equities, although the bulk of the trading activity took place at lower levels.

In other news, CDW Corp. came out with price talk on its term loan as the deal was launched with a bank meeting, and Delphi Corp. released structural and pricing details on its downsized exit financing facility as it too launched during the session.

Also in the primary, Goodrich Petroleum Corp. determined the final size of its second-lien term loan as it's getting ready to give out allocations.

The secondary cash market was softer by anywhere from a quarter of a point to a point depending on the name, with LBO deals hit in particular, according to traders.

For example, Allison Transmission, a Speedway, Ind., designer and manufacturer of automatic transmissions, saw its term loan B quoted at 91 bid, 92 offered, down from 92¼ bid, 93¼ offered, traders said.

First Data, a Greenwood Village, Colo., provider of electronic commerce and payment services, saw its term loan B-1 quoted at 93¾ bid, 94¾ offered, down from 94 1/8 bid, 94¾ and its term loan B-2 quoted at 93¾ bid, 94¾ offered, down from 94¼ bid, 94 7/8 offered, traders remarked.

Chrysler Financial, a provider of financial services for vehicles in the NAFTA region, saw its first-lien term loan quoted at 95½ bid, 96¼ offered, down from 96¼ bid, 97 offered.

Texas Competitive Electric, a Dallas-based energy company, saw its term loan B-2 quoted at 97¼ bid, 98 offered, down from 97¾ bid, 98¼ offered, traders continued.

Lastly, Alltel, a Little Rock, Ark., provider of wireless voice and data communications services, saw its term loan B-3 quoted at 95¾ bid, 96¼ offered, down from 95 7/8 bid, 96½ offered.

One trader explained that things were overall lower because of "continued worry in the credit markets. No real event."

A second trader remarked that LBO deals are probably the "first ones that people think are overlevered" making them the prime targets when there are credit market concerns and recession concerns. He continued to say that some secondary pressure may also be coming from the primary. "The new issue calendar is crazy. About $10 billion to $15 billion if institutional paper came out this week. Where is it all going?"

A third trader said that LBO deals "are a bit more liquid and a lot of guys think they're riskier," which is why they were a focus on Wednesday.

LCDX ends stronger

Meanwhile, LCDX 9 was stronger on a day-over-day basis as it rallied late in the session with stocks, but the majority of the trading activity took place at weaker levels, according to traders.

The index went out around 95.80 bid, 96.00 offered, up from 95.55 bid, 95.70 offered, traders said, but most trading on Wednesday took place in the 95.05 bid, 95.35 offered context.

"It moved up with equities towards the end of the day but didn't really trade there," one trader added.

Nasdaq closed up 34.04 points, or 1.39%, Dow Jones Industrial Average closed up 146.24 points, or 1.16%, S&P 500 closed up 18.94 points, or 1.36%, and NYSE closed up 98.61 points, or 1.06%.

CDW price talk

Over in the primary, CDW held a bank meeting on Wednesday morning to kick off syndication on its $2.2 billion institutional term loan, and in conjunction with the launch, price talk was announced, according to a market source.

The term loan was presented to lenders with talk of Libor plus 300 basis points at an original issue discount in the 96 context, the source said.

Commitments are due on Jan. 18.

The bank meeting for the deal was well attended with an estimated more than 100 accounts there in person, the source continued.

"I think that people received the story, the company and management very well. Think people will have concerns over how they'll perform in a recession but last recession, they did very well," the source added.

Market participants have previously pointed out that the term loan has some positives working in its favor, including good ratings and strong performance by the company.

Standard & Poor's rated the term loan at BB- with a 1 recovery rating, and Moody's Investors Service rated the term loan at B2 with a loss-given-default assessment of LGD3 (38%). Corporate credit ratings for CDW are B/B3.

The company's senior secured leverage is just under 5.0 times, based on Sept. 30 financials. By comparison, based on June 30, 2007 financials, senior secured leverage was at 5.0 times even.

Lehman Brothers, JPMorgan, Deutsche Bank and Morgan Stanley are the lead banks on the term loan, with Lehman the left lead.

Proceeds from the deal, which already funded back in October, were used to help back the leveraged buyout of the company by Madison Dearborn Partners LLC and Providence Equity Partners Inc. for $87.75 in cash per share. The transaction was valued at $7.3 billion.

In connection with the LBO, the company also got an $800 million ABL revolving credit facility that was syndicated late last year at pricing of Libor plus 150 bps.

Other financing for the LBO came from bridge loans that are expected to be taken out with bonds. The contemplated high-yield offering totals $1.94 billion, consisting of $890 million senior unsecured cash-pay notes, $300 million senior unsecured PIK toggle notes and $750 million senior subordinated notes.

CDW is a Vernon Hills, Ill., provider of technology products and services to business, government and education customers.

Delphi releases guidance

Also holding a bank meeting on Wednesday was Delphi, which revealed details on the tranching and pricing of its downsized exit financing credit facility, according to market sources.

The $6.125 billion facility was launched to U.S. investors as a $1.6 billion ABL revolver talked at Libor plus 250 bps, a $3.7 billion first-lien term loan (B+) talked at Libor plus 450 bps and an $825 million second-lien term loan (B-) with price talk still to be determined, sources said.

The company will also hold a bank meeting in London on Thursday to launch the credit facility to European investors. Up to $750 million of the first-lien term loan will be placed with those investors.

The first-lien term loan is being offered with an original issue discount of 96 and carries call protection of 102 in year one and 101 in year two, the source continued.

Of the total second-lien term loan amount, $750 million will be issued to General Motors Corp. in connection with plan of reorganization distributions.

Originally, the deal was expected to launch on Tuesday afternoon with a total size of $6.8 billion, with the difference being that the second-lien was going to be sized at $1.5 billion. The deal was pushed off for one day to give the company time to complete the modification to its lender presentations and other documents after the decision was made to downsize the transaction.

The company said that the amount of the requested exit financing was reduced as a result of a permanent improvement in liquidity because it generated cash flow during the second half of 2007 in excess of the amount projected in its revised business plan.

In addition, based on filings with the Securities and Exchange Commission, it was previously expected that the revolver would be priced at Libor plus 225 bps and the first-lien term loan would be priced at Libor plus 375 bps. The filings also said that the second-lien term loan would be priced at 9.5%.

JPMorgan and Citigroup are the lead banks on the deal that will be used to repay the company's debtor-in-possession financing facility, to fund other payments required upon emergence from Chapter 11 and to conduct post-reorganization operations.

Delphi is a Troy, Mich.-based automotive electronics manufacturer.

Goodrich downsizes

Goodrich Petroleum firmed up the size on its second-lien term loan at $75 million, down from the original size of $100 million, as a result of the success of its equity offering, according to a market source.

In December, the company closed on a common stock offering that generated net proceeds of $145.4 million. The company is using $123.9 million of the proceeds to pay off outstanding borrowings under its senior credit facility and $21.5 million of the proceeds to purchase capped call options on its common stock.

The second-lien term loan due Dec. 31, 2010 is priced at Libor plus 500 bps, is non-callable for one year, then at 101 in year two and par after that, and was sold to investors at par.

Earlier on in syndication, pricing on the loan was reverse flexed from Libor plus 600 bps and a delayed-draw option for $50 million of the term loan was removed.

BNP Paribas is the lead bank on the deal that will be used to pay down revolver borrowings.

Allocations are tentatively scheduled to go out on Friday, the source added.

Goodrich is a Houston-based crude oil and natural gas company.

Correctional Medical wraps deal

Correctional Medical Services Inc. completed its $222.25 million credit facility that consists of a $50 million revolver, a $141 million term loan A and a $31.25 million last-out term loan B, according to a market source.

The revolver and the term loan A are priced at Libor plus 450 bps, and the term loan B is priced at Libor plus 650 bps.

All three tranches were sold to investors at an original issue discount of 99.

Originally, the deal was expected to be sized at $230 million, with the term loan A $145 million and the term loan B $35 million, but tranche sizes were tweaked during syndication.

Dymas Capital Management and CapitalSource Finance acted as the lead banks on the deal that was used to help fund the buyout of the company by management and Beecken, Petty, O'Keefe & Co.

Correctional Medical is a St. Louis-based provider of health services for prisons and jails.

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