Federal-Mogul breaks; ResCap term loan rises; Freescale gains; Claire's bounces with downgrade

By Sara Rosenberg

New York, May 2 - Federal-Mogul Corp.'s block of term loan debt that Citigroup was in the market with freed up for trading late in the day Friday, with levels quoted near the discount price at which the paper was sold.

Also in trading, Residential Capital LLC's (ResCap) term loan headed higher in trading on Friday after the company announced plans for a new credit facility as well as bond exchange and tender offers.

And, Freescale Semiconductor Holdings I Ltd.'s term loan shot up a few points, although the driver behind the momentum was unclear, and Claire's Stores Inc.'s term loan was better on a day-over-day basis with the rest of the market; however, following a ratings downgrade, levels did come in a little bit.

Over in the primary, rumors surfaced that Kinetic Concepts Inc. may eliminate its term loan B and upsize its revolver and term loan A to compensate.

Federal-Mogul's $1 billion block of term loan B and term loan C debt hit the secondary market on Friday afternoon, with levels quoted at 85 bid, 86 offered, according to a trader.

The debt was part of the company's $1.96 billion term loan B and a $1 billion term loan C, which the company obtained late last year for exit financing.

The chunk of debt, which was pro rata across the tranches, was sold by Citigroup at a price of 85.

Pricing on the term loan B and the term loan C is Libor plus 193.75 basis points.

Citi had been trying to put together a book for the term loan debt in the range of $500 million to $1 billion for a few weeks, but following a lender call with the company that was held Thursday to discuss the syndication, the process found really good momentum, the trader added.

Federal-Mogul is a Southfield, Mich.-based supplier of powertrain, chassis and safety technologies.

ResCap better following debt news

ResCap was a highly talked about name during the session as the company revealed that it is working on a new multi-billion credit facility and will be attempting to exchange and tender for a large amount of notes, according to traders.

And, on the heels of all the commotion, the company's term loan rallied by a couple of points as investors are hoping for some sort of paydown in connection with all the new debt financing, one trader remarked.

The company's existing term loan was quoted at 94 bid, 96 offered, up from Thursday's levels of 90 bid, 92 offered, the trader said.

Early Friday morning, ResCap said that it is in talks with GMAC LLC about a new $3.5 billion first-lien senior secured credit facility.

Successful completion of the credit facility, on satisfactory terms, is a condition of the company's proposed cash tender and exchange offers for any and all of its U.S. dollar equivalent $12.8 billion outstanding notes.

Under the exchange offers, ResCap will offer to issue new 8.5% senior secured guaranteed notes due 2010 in exchange for existing 2008 and 2009 notes. The new senior secured guaranteed notes will be secured on a second-lien basis by the collateral for the credit facility.

The company will also offer to issue new 9.625% junior secured guaranteed notes due 2015 in exchange for existing 2010 through 2015 notes. The new junior secured guaranteed notes will be secured on a third-lien basis by the collateral for the credit facility.

Noteholders participating in the exchange offers will be allowed to elect to receive cash instead of the new notes that they would otherwise receive under a modified Dutch auction process.

The amounts of cash that ResCap expects to have available to pay participating holders in lieu of new notes will be $700 million with respect to the old 2008 to 2009 notes and $500 million with respect to the old 2010 to 2015 notes.

The company also plans on starting a cash tender offer for any and all of its outstanding $1.199 floating rate notes due June 9.

In conjunction with the offers, the company will solicit consents to certain proposed amendments to the indentures under which the old notes were issued. The amendments to the old notes would release the subsidiary guarantees of ResCap's obligations under the old notes and would eliminate certain of the restrictive covenants and events of default currently in the indentures.

However, the amendments are not necessary for the issuance of the new notes or for the pledge of collateral for the new notes.

In reaction to the news, Standard & Poor's lowered selected ratings on ResCap, including the long-term corporate credit rating to CC from CCC+. The ratings remain on CreditWatch with negative implications.

"The downgrade reflects the probability that, with the successful execution of the exchange offer, which will pay less than face value to certain Residential Capital LLC bondholders, Standard & Poor's, in accordance with our criteria, will lower our corporate credit rating on the company to SD (selective default)," said S&P credit analyst John K. Bartko, C.P.A., in the rating release.

S&P also said that the ratings on the affected debt issues would be lowered to D, although the exchange would not constitute a legal default.

"A successful exchange would extend debt maturities, providing needed relief, but the action illustrates the gravity of the company's financial position," S&P remarked.

"Furthermore, the exchange indicates that ultimate parents General Motors Corp. and Cerberus Capital Management LP are pursuing these actions rather than directly providing GMAC LLC with additional capital to downstream to Residential Capital LLC. We believe that if the exchange fails, Residential Capital LLC might file for bankruptcy protection," S&P added.

Moody's Investors Service downgraded ResCap as well on Friday, cutting the senior debt rating to Ca from Caa1. All ratings remain under review for downgrade.

"Despite the benefits this exchange could have on ResCap's ability to service its debt, the ratings remain under review for downgrade. This is because ResCap has not proven it has a business model that can produce the required operating cash flow to service and ultimately repay these reduced obligations," the Moody's release said.

Fitch Ratings also came out with a downgrade for ResCap following the debt exchange news, cutting the company's issuer default rating to C from BB- and its senior debt to C from B+. Ratings remain on Watch Negative.

Upon completion of the exchange, ResCap's issuer default rating will be downgraded to D indicating a default has occurred in accordance with Fitch's criteria on distressed debt exchanges.

At completion of the exchange, Fitch would assign a post-default issuer default rating and new issue level ratings solely reflecting a prospective view of ResCap and its new capital structure. Fitch said that it envisions that ResCap's issuer default rating would be in the single B category, with issue level and recovery ratings reflecting relative seniority and recovery within the capital structure.

ResCap, an indirect wholly owned subsidiary of GMAC Financial Services, is a Minneapolis-based real estate finance company focused primarily on the residential market.

Freescale trades up

Freescale Semiconductor's term loan was a noticeable mover in what was already a very strong cash market Friday as it posted gains that were above the average strengthening.

Austin, Texas-based Freescale, a designer and manufacturer of embedded semiconductors, saw its term loan quoted at 91 bid, 92 offered, up from Thursday's levels of 88 bid, 89 offered, according to traders.

"It's probably just driven by the derivative," one trader remarked.

"There's no credit specific news. This thing has just been moving higher," a second trader added.

"Market's been up, up and away. Everything is up three eights to half a point," the second trader continued. "LCDX [10] was 99.90 [bid], par [offered], up from 99.35 [bid], 99.45 [offered]. Big news today was the ResCap news. Also, positive jobs data this morning."

The Labor Statistics of the U.S. Department of Labor reported Friday that the unemployment rate for April was 5%, down slightly from 5.1% last month.

Nonfarm payroll employment was down 20,000 in April, following job losses in the first quarter that averaged 80,000 per month.

In April, employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services.

"In today's better-than-expected jobs report, both payroll employment and the unemployment rate were essentially unchanged from last month. While we continued to see declines in construction and manufacturing, the service-providing sector of the economy showed an encouraging increase of 90,000 jobs. The economic stimulus checks, some of which have already been mailed out, should help working families cope with the very real short term challenges of the current economy," added Elaine L. Chao, secretary of labor, in a statement that was issued.

Claire's Stores seesaws

Claire's Stores' term loan moved up by half a point early on in the day with the rest of the cash market, but following a downgrade, some of those gains were lost, according to a trader.

The term loan went out around 80¼ bid, 81¼ offered, up from Thursday's levels of 80 bid, 81 offered, the trader said.

However, pre-downgrade on Friday, the term loan was quoted at 80½ bid, 81½ offered, the trader added.

The downgrade came from S&P, which, among other things, lowered Claire's corporate credit rating to B- from B and senior secured credit facility to B from B+.

S&P attributed the downgrade to the company's poor performance over the past year and the modest weakening of its credit protection profile that occurred concurrent with the deterioration of operations.

Claire's is a Pembroke Pines, Fla.-based specialty retailer of value-priced jewelry and accessories for girls and young women.

Kinetic may retranche

Moving to primary happenings, market chatter is that Kinetic Concepts may cancel its term loan B and instead upsize its revolver and term loan A, according to a market source.

Details on the possible new tranche sizes were unavailable prior to press time.

As launched, the deal consists of a $300 million five-year revolver, an $800 million five-year term loan A and a $200 million six-year term loan B, with all tranches talked at Libor plus 325 bps, with a 3.25% Libor floor.

The term loan B was launched with an original issue discount of 98, while upfront fees on the revolver and the term loan A vary based on commitment size.

The revolver has a 50 bps commitment fee.

Prior to the bank meeting, the term loan A was expected to be sized at $1 billion and the term loan B was expected to be sized at $600 million, but they were reduced as a result of the company's recent pricing of a $600 million convertible senior notes offering. The company announced on Friday that this convertible offering ended up being upsized to $690 million because of the over-allotment option.

In addition, based on a commitment letter filed with the Securities and Exchange Commission, it was expected that the term loan B would carry pricing of Libor plus 350 bps and be offered at a discount of 95, but that was when the tranche was larger. The commitment letter had revolver and term loan A pricing at Libor plus 325 bps.

Financial covenants under the credit facility include a maximum leverage ratio and a minimum fixed-charge coverage ratio.

Bank of America and JPMorgan are the joint lead arrangers and joint bookrunners on the $1.3 billion senior secured deal (Ba1/BBB-), with Bank of America the administrative agent and JPMorgan the syndication agent.

Proceeds will be used to help fund the acquisition of LifeCell Corp. Under the purchase agreement, Kinetic commenced a cash tender offer to acquire all outstanding shares of LifeCell's common stock at a price of $51 per share. The transaction is valued at $1.7 billion in cash.

Pro forma 2007, total debt to EBITDA is 3.0 times.

Kinetic is a San Antonio-based medical technology company. LifeCell is a Branchburg, N.J.-based provider of biological products for soft tissue repair.

Macrovision closes

Macrovision Corp. completed its acquisition of Gemstar-TV Guide International, Inc. in a cash and stock transaction valued at $2.8 billion, according to a news release.

To help fund the transaction, Macrovision got a new $550 million five-year term loan B (Ba2/B+) priced at Libor plus 375 bps, with a 3.5% Libor floor. The tranche was sold at an original issue discount of 971/2. It carries 101 soft call protection for one year.

During syndication, the term loan B was upsized from $500 million, the original issue discount tightened from 97, and pricing firmed at the wide end of original guidance of Libor plus 350 bps to 375 bps.

The $50 million upsizing to the B loan was to help compensate for a $150 million senior unsecured notes offering that was canceled. The remaining $100 million of funds is came in the form of $100 million subordinated bonds that were privately placed.

JPMorgan and Merrill Lynch acted as the joint lead arrangers and joint bookrunners on the deal, with JPMorgan the administrative agent.

Macrovision is a Santa Clara, Calif.-based provider of services that enable businesses to protect, enhance and distribute their digital goods to consumers across multiple channels. Gemstar-TV Guide is a Los Angeles-based media, entertainment and technology company.

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