Community Health moves up as trading begins, reassuring market

By Sara Rosenberg

New York, July 11 - Community Health Systems Inc.'s new loan was allocated late Wednesday and broke Thursday in the secondary, according to an investment banker. Because it just hit the secondary market, it was basically the most active issue of the day. The loan was bid at par and a half, which according to the banker, gave the market some comfort that despite the back up in high yield, bank loans with "a little bit of juice and a little bit of yield are still okay."

Community Health "gave credibility to a good issuer and a good deal," he added.

The Brentwood, Tenn. provider of general hospital healthcare services launched its $1.25 billion credit facility (Ba3/BB-/BB) in June. The loan consists of a $450 million six-year revolver with an interest rate of Libor plus 225 basis points and an $800 million eight-year term loan B with an interest rate of Libor plus 250 basis points.

"We didn't see a reverse flex [on the B loan], which people did expect given the oversubscription," the banker said.

Upfront fees for the revolver were set at 75 basis points for a commitment of $15 million and 100 basis points for a commitment of $25 million, market sources previously told Prospect News. JPMorgan Chase and Bank of America are the lead banks on the deal.

Security is a perfected first priority interest in the capital stock of CHS/Community Health Systems Inc. and its wholly-owned subsidiaries.

Meanwhile, now that things have settled down regarding the Adelphia Communications Corp. saga, some people are finding cable company bank loans to be an attractive investment, if they don't already own it. Secondary prices on the sector dropped more and more as the Adelphia story unfolded, leaving trading levels below par, a good buy in the currently overpriced market.

Adelphia, a Coudersport, Pa. cable company, left a bad taste in people's mouths after allegations of misuse of funds and news of resignations of top management were brought to the public domain. The story finally concluded with a Chapter 11 filing last month.

Investors may still be a bit squeamish about the cable sector, with thoughts of accounting discrepancies and possible future bankruptcies lurking in the back of their minds. However, according to one fund manager, if a loan is well protected, then risk is limited and the return on the investment should be favorable.

"In a market where everything is overpriced, cable is kind of screaming, 'Buy me!'" the fund manager said. "I think the whole cable industry is below par because of fear and loathing for the industry right now."

For example, Charter Communications, a St. Louis, Mo. cable company, was quoted at around 91 on Thursday, which is "very close to whatever lows I've seen" on the company's bank loan paper, the fund manager said. "It's hard to find a reason not to own it unless you're concerned about the default rate," he added.

"Everyone assumes the better Adelphia loans will get current interest rates in bankruptcy," the fund manager said. So, owning a well-protected loan from a cable company is not a high risk, he explained and with Charter, paying 91 for a loan that bears interest at about Libor plus 275 basis points, an investor should get a nice return, the fund manager concluded.

"Cable is good value," a trader said. "The one problem is that everybody that is in that space already owns it, so the paper is heavy because of that."

In primary news, syndication of F&W Publications Inc.'s new $175 million credit facility is going well, a syndicate source said. The deal, which was launched on Tuesday, consists of a $150 million 7½ year term loan B with an interest rate of Libor plus 325 basis points and a $25 million six-year revolver with an interest rate of Libor plus 325 basis points, the syndicate source. JPMorgan Chase and Fleet are joint leads on the deal.

Proceeds from the new loan are being used to "back the acquisition of Krause Publications Inc.," the syndicate source said. The transaction is expected to close later this month.

F&W Publications, a Providence Equity Partners portfolio company, is a Cincinnati, Ohio special interest publisher of books and magazines.

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