GM, Ford rally; Northwest, Delta better as merger clears hurdle; Sensata drops on numbers

By Sara Rosenberg

New York, Oct. 29 - General Motors Corp. and Ford Motor Co. both saw their term loans improve strongly during Wednesday's trading session as a whole slew of positive chatter was floating around the market.

Also in trading, Northwest Airlines Corp. and Delta Air Lines Inc. saw positive momentum in their bank debt as the merger of the two companies cleared an obstacle, and Sensata Technologies BV's term loan B headed lower during Wednesday's trading session after the company reported third-quarter financials.

Over on the primary side of things, Earthbound Farm is anticipating finalizing pricing on its in-market credit facility sometime in the near future and so far, syndication on the deal is heard to be going okay.

Also, Hexion Specialty Chemicals Inc. has now begun a court case against the banks that provided the debt commitment letter for its acquisition of Huntsman Corp. due to their recent refusal to fund the commitments.

GM, Ford gain ground

General Motors' and Ford's term loans were stronger during Wednesday's market hours on a bunch of positive rumblings for the auto sector, according to traders.

General Motors, a Detroit-based automotive manufacturer, saw its term loan quoted by one trader at 51½ bid, 54½ offered, up 3½ points on the day, and by a second trader at 52 bid, 55 offered, up four points on the day.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted by one trader at 53½ bid, 56½ offered, up 3½ points on the day, and by a second trader at 53½ bid, 55½ offered, up four points on the day.

GM, Ford spurred on by positives for the sector

According to one of the traders, the bank debt of General Motors and Ford were up for a number of reasons, including that the loan market overall was better by about half a point to a point and a half on Wednesday, as well as some more sector-specific buzz.

"There's talk about the GM, Chrysler combination. There's talk that the companies might be getting funding from the government. And, there's talk that GMAC might be getting money from the Fed and becoming a bank essentially," the trader said.

During the session, news reports surfaced that General Motors and Cerberus Capital, the owner of Chrysler Corp. LLC, have resolved some major issues in the possible combination of the two companies, moving them one step closer to announcing a merger agreement.

In addition, there were rumors that GMAC, the financial services company partially owned by General Motors and partially owned by equity sponsors, is looking to become a bank holding company so as to be allowed to use the government's recently approved $700 billion financial plan.

Also helping with the overall positive tone of the day was the Federal Reserve's decision to cut interest rates by 50 basis points.

Northwest, Delta rise

Northwest Airlines and Delta both saw their bank debt levels head higher in trading as news emerged that the Department of Justice approved the pending merger of the two companies, according to a trader.

Northwest's term loan was quoted at 80½ bid, 84½ offered, up from 79 bid, 83 offered, the trader said.

Meanwhile, Delta's first-lien term loan was quoted at 65 bid, 70 offered, up from 63 bid, 66 offered, and its second-lien term loan was quoted at 52½ bid, 55½ offered, up from 51½ bid, 53½ offered, the trader continued.

Northwest is an Eagan, Minn.-based airline company. Delta is an Atlanta-based airline company.

In April, the two companies announced plans to merge in an all-stock transaction with a combined enterprise value of $17.7 billion. The transaction is expected to close by year-end.

Sensata dips with earnings

Sensata's term loan B weakened by a couple of points in the secondary after the company came out with quarterly results, but there was not a whole lot of trading in the name, according to a trader.

The term loan B was quoted at 63 bid, 68 offered, the trader said.

"Quiet. Bonds down five points in Europe today. Bank debt off two to three. Had a lot to do with earnings," the trader added.

Sensata falls short of expectations

For the third quarter, Sensata reported net revenue of $361.8 million, compared to net revenue of $357.4 million last year, adjusted EBITDA of $85 million, down $5.1 million from last year, and net income of $72.5 million versus a net loss of $86.8 million last year.

"Our third quarter missed our expectations due to the worsening economic conditions world wide. Although we saw growth in net revenue, it was lower than expected and has changed our expectations for net revenue growth for the balance of the year, and for the next several quarters," said Tom Wroe, chairman and chief executive officer, in a news release.

"Given the decline, we are seeing in Europe, and now beginning to see in Asia, we expect our fourth quarter to be down as much as 10-15% from last year. The significance of the decline in 2009 will depend on the depth and the longevity of the downturn, particularly within the automotive and housing markets," Wroe continued.

"We will continue to monitor the economy and remain nimble in our business. Flexibility is key in these unprecedented times of volatility in both the market overall and in the specific end markets we serve. As a result, we have and we will continue to evaluate cost containment measures to assure our cost is aligned with this demand," Wroe added in the release.

Sensata draws on revolver, lowers cash flow guidance

Also on Wednesday, Sensata announced that it drew down $25 million under its revolving credit facility in a move that was related to its view of potential counter party risk.

The company went on to say that it is now expecting free cash flow in the range of $75 million to $85 million for the year, down from its previous guidance of $100 million.

Sensata is an Attleboro, Mass.-based designer and manufacturer of sensors and controls.

Earthbound Farm working on setting spreads

Switching to the primary, Earthbound Farm is hoping to firm pricing on its $185 million credit facility by the end of next week as syndication on the deal is expected to come to a close, according to a market source.

"Deal is going fine. Several banks working hard," the source said in regards to how syndication is coming along.

The facility consists of a $35 million revolver and a $150 million term loan A. Price talk on the tranches has yet to be announced.

RBC Capital Markets is the lead bank on the deal that was launched to investors with a bank meeting on Oct. 9.

Proceeds will be used to fund the leveraged buyout of the company by Lindsey Goldberg.

Senior leverage is 2.6 times and total leverage is 3.6 times.

Earthbound Farm is a San Juan Bautista, Calif.-based organic produce company.

Hexion takes banks to court

Hexion announced on Wednesday that it has commenced an action in the Supreme Court of the State of New York against Credit Suisse and Deutsche Bank as a result of the banks' refusal to fund the debt financing for the purchase of Huntsman, according to a news release.

Hexion alleged in the suit that the banks breached their obligations under the commitment letter to fund the closing of the acquisition, and is seeking specific performance of the banks' obligations on an expedited basis.

"Both Hexion and Huntsman are ready, willing and able to complete the merger immediately, but have been prevented from doing so by the banks' breach. We are seeking judicial relief to compel the banks to fund the merger as required by their commitment letter and we intend to pursue this action vigorously," said Craig Morrison, chairman and chief executive officer of Hexion, in the release.

The acquisition was expected to close on Tuesday, but, as was previously reported, that closing was delayed because the banks claimed that they should not have to fund their commitments since they do not believe that the solvency opinion of American Appraisal Associates and the solvency certificate of Huntsman's chief financial officer meet the condition of the commitment letter.

On July 12, 2007, Hexion agreed to acquire Huntsman in an all-cash transaction valued at $10.6 billion, including the assumption of debt. Huntsman shareholders approved the deal in October 2007.

Hexion credit facility commitment

Under the original commitment, Credit Suisse and Deutsche Bank had agreed to provide Hexion with a $9.4 billion credit facility, consisting of an $8.4 billion term loan and $1 billion revolver, or a $7.4 billion term loan and $2 billion asset-based revolver, according to previous filings with the Securities and Exchange Commission.

However, it is unclear whether this is actually what the banks are being asked to fund.

Over the past few weeks, there has been some new financing announced for the acquisition, such as a $540 million capital contribution from Apollo Management LP.

Hexion is a Columbus, Ohio-based thermoset resins company. Huntsman is a Salt Lake City-based manufacturer of differentiated chemicals and pigments.

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