York Label, L-1 Identity float early guidance; Keeley cuts deal size; Masonite up on amendment talk

By Sara Rosenberg

New York, July 9 - York Label and L-1 Identity Solutions Inc. began circulating some early indications on pricing guidance for their credit facilities as York is getting ready to launch on Thursday and L-1 is getting ready to launch next week.

Also in the primary, Keeley Holdings Inc. downsized its credit facility and opted for more mezzanine financing, thereby lowering the amount of opening senior leverage at the company.

Moving to secondary happenings, Masonite International Inc.'s term loan B was a touch better on amendment news, LCDX 10 was a bit lower with equities and the cash market basically ended the day unchanged.

York Label saw some early price talk begin to make its way around the market during the session, ahead of the Thursday bank meeting that will take place to officially kick off syndication on the deal, according to a buyside source.

The company's $135 million six-year term loan is being guided at Libor plus 475 basis points to 500 bps, with an original issue discount in the 97 to 98 area and a 3% Libor floor, the source said. This early "unofficial" talk is based on expected ratings of B2/B.

York Label's roughly $190 million credit facility also includes a C$30 million six-year term loan, a $23 million five-year revolver and a C$2 million five-year revolver.

Bank of America is the lead bank on the deal that will be used to help fund the buyout of the company by Diamond Castle.

York Label is an Omaha, Neb.-based provider of labeling technologies to major global consumer goods, wine & spirits, pharmaceutical and food & beverage companies.

L-1 Identity unofficial talk surfaces

L-1 Identity Solutions also saw the emergence of unofficial guidance on its term loan as the deal's Tuesday morning bank meeting is nearing, according to sources.

The $250 million five-year term loan is being indicated with early price talk of Libor plus 450 bps with a 3% Libor floor and an original issue discount of 98, sources said. Official talk on the deal is not out as of yet.

The company's $350 million senior secured credit facility also includes a $100 million five-year revolver with a 50 bps commitment fee.

Recently, the company filed the credit facility commitment letter with the Securities and Exchange Commission. According to the filing, depending on corporate family ratings, pricing on the term loan can range from Libor plus 375 bps to Libor plus 500 bps and pricing on the revolver can range from Libor plus 325 bps to 400 bps.

Based on the filing, the term loan pricing would be Libor plus 450 bps if corporate family ratings were B1/B+. At those same ratings, the revolver pricing would be Libor plus 375 bps.

The commitment letter also said that the original issue discount on the term loan could range from 98 to 99 based on corporate ratings as well. At the B1/B+ rating level, the discount is outlined as 98.

Originally, the deal was scheduled to launch with a bank meeting on July 16, but timing was moved forward by one day, one source added.

Financial covenants under the credit facility include a consolidated total opco leverage ratio not to exceed 3.25 to 1.00 and a debt service overage ratio of not less than 2.75 to 1.00.

Bank of America and Wachovia are the joint lead arrangers and bookrunners on the deal, with Bank of America the administrative agent and Wachovia the syndication agent.

Proceeds will be used to help fund the tender offer for Digimarc Corp.'s outstanding common stock for $11.90 per share - assuming about 26 million fully-diluted shares outstanding - which commenced last week.

Beaverton, Ore.-based Digimarc is spinning off its digital watermarking business, so L-1 is really just acquiring the ID Systems business, which provides products and services that enable the annual production of more than 60 million personal identification documents, including ID services for more than 25 countries.

Completion of the transaction is subject to consummation of the tender offer, the spin-off of the digital watermarking business and other customary closing conditions. The Federal Trade Commission has already granted early termination of the Hart-Scott-Rodino antitrust review process.

L-1 is a Stamford, Conn., provider of products for protecting and securing personal identities and assets.

Keeley downsizes

Keeley Holdings scaled back on the amount of senior bank debt that it is obtaining in favor of getting more mezzanine debt, resulting in a reduction in senior leverage, according to a market source.

Under the changes, the company reduced its amortizing term loan size to $150 million from $175, while leaving pricing on the tranche unchanged at Libor plus 475 basis points with a 3% Libor floor and an original issue discount of 98, the source said.

On the flip side, the amount of mezzanine financing that TA Associates will hold in connection with this transaction has been increased to $60 million from $35 million.

As a result of this move, the company's opening senior leverage is now at 1.9 times, down from 2.3 times, but total leverage remained at 2.8 times, the source continued.

Meanwhile, Keeley's $10 million revolver was left unchanged in terms of size and pricing, which is also set at Libor plus 475 bps with a 3% Libor floor and an original issue discount of 98.

At launch, guidance on the original issue discount on both the term loan and the revolver emerged in the 98 to 99 context; however, late last month, it was said by sources that the focus was on the wide end of that initial talk.

Bank of Montreal and CIT are the lead banks on the now $160 million five-year credit facility, down from $185 million, with Bank of Montreal the left lead.

Proceeds from the credit facility and the mezzanine debt will be used to help fund TA Associates' purchase of a minority interest in the company.

Recommitments are due from lenders on Friday with the hope being that the deal could possibly allocate next week.

Even though investors still have a few days to place their orders, syndication on the credit facility is basically done at this point, the source added.

Keeley is a Chicago-based investment manager that has about $9 billion in asset under management.

Masonite gains ground

Switching to trading news, Masonite's term loan B was slightly stronger after news came out that the company is negotiating with lenders regarding a credit facility amendment, according to a trader.

The term loan B was quoted at 90¼ bid, 91¼ offered, up about half a point from the previous night's close, the trader said.

"The company struggles and looks like there's non-compliance. It's opportunistic. People see a chance to renegotiate and they jump on board," the trader said in explanation of the loan's trading performance.

On Wednesday, Masonite said that it is looking to amend its credit facility to waive possible non-compliance with financial covenants.

Based on a preliminary evaluation of its financial performance, the company currently expects to be unable to comply with its financial covenants, which relate to EBITDA metrics, for the quarter ended June 30.

The company explained that the struggle in meeting its covenants reflect the challenging conditions in the U.S. housing industry.

Masonite also said it is not cash constrained, with about $240 million of cash on hand as of June 30, and with ample liquidity to fund operations for the foreseeable future.

The $240 million of cash on hand reflects the full repayment of the $66.4 million that was outstanding under the company's accounts receivable sales facility at March 31 as well as the completion of the acquisition of 25% of Sacopan Inc. for about $17 million.

"While we have taken strong steps to right size our business and improve our manufacturing efficiencies, continued volume weakness resulting from the ongoing downturn in the U.S. housing market has compromised our ability to maintain compliance with our financial covenants" said Fred Lynch, president and chief executive officer, in a news release.

"We remain focused on delivering the highest value door products to our customers around the world without disruption while navigating a tough environment industry wide."

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

LCDX slides

Also in trading, LCDX 10 ended the day weaker as equities sold off, while cash, which started off strong, basically just gave up its gains to close unchanged, according to traders.

The index was quoted at 96.70 bid, 96.80 offered, down from around 96.80 bid, 96.90 offered on Tuesday, traders said.

Regarding the cash market, one trader said that it was a "little bit of a sloppy day. Saw some good two way flows. Cash felt better to me today than it did yesterday. A little bit of a disconnect from equities."

"Things felt good this morning. With equities fading, bids faded away so we ended up basically unchanged. Sentiment just disappeared with the equities market," a second trader remarked.

Nasdaq closed down 59.55 points, or 2.60%, Dow Jones Industrial Average closed down 236.77 points, or 2.08%, S&P 500 closed down 29.01 points, or 2.28%, and NYSE closed down 144.16 points, or 1.69%.

Rite Aid closes

Rite Aid Corp. closed on its new $350 million senior secured tranche 3 term loan due June 4, 2014 (Ba3/BB-/BB-), according to a news release.

The term loan is priced at Libor plus 300 bps with a 3% Libor floor and was sold at an original issue discount of 90.

During syndication, pricing on the term loan was flexed up from Libor plus 225 bps and the discount widened from 94.

Citigroup and Bank of America acted as the lead banks on the deal, with Citigroup the left lead.

Proceeds were used to help fund the previously announced offers to purchase and the consent solicitations related to the company's $360 million of 8 1/8% senior secured notes due 2010, $200 million of 7½% senior secured notes due 2015 and $150 million of 9¼% senior notes due 2013.

Other financing for the tender offers came from a bond offering. Rite Aid priced $470 million of 10 3/8% eight-year senior secured second-lien notes at 90.588 to yield 12¼%. The bonds generated $425.76 million of proceeds.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

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