Walter/Mueller, Concentra break in 101 region; NRG loan uptick sparks confusion

By Sara Rosenberg

New York, Sept. 28 - Walter Industries Inc.'s two-part credit facility freed up for trading Wednesday, with levels on both term loan Bs closing out the day in the upper-101 context. And, Concentra Operating Corp. broke for trading as well, with levels quoted right atop 101.

Also, in trading, NRG Energy Inc.'s term loan bounced back up into the 101s, leaving many investors baffled being that the purchase rumors that had previously pushed it down have not changed or subsided.

Walter Industries allocated its two-part credit facility - the Walter deal and the Mueller deal - on Thursday, and both deals' term loan Bs ended the day in the upper-101s, a little higher from levels seen on the break.

The Walter $450 million term loan B freed up for trading at 101 3/8 bid, 101 5/8 offered and then ticked higher to 101 5/8 bid, 101 7/8 offered, where it closed out the session, according to a trader.

The Mueller $1.05 billion term loan B freed up for trading at 101½ bid, 101¾ offered and then ticked up to the 101 5/8 bid, 101 7/8 offered as well, where it too closed out the session, the trader said.

Walter's term loan B is priced with an interest rate of Libor plus 200 basis points, with a step down to Libor plus 175 basis points under certain conditions. The tranche was recently upsized from $425 million and reverse flexed from Libor plus 225 basis points with the addition of the step down.

Mueller's term loan B is priced with an interest rate of Libor plus 225 basis points, with a step down to Libor plus 200 basis points under certain conditions. This tranche was recently reverse flexed from Libor plus 250 basis points with the addition of the step down.

Walter's $675 million credit facility (Ba3/B+) also contains a $225 million revolver that was recently upsized from $200 million.

Mueller's $1.175 billion credit facility (B2/B+) contains a $125 million revolver.

The $1.85 billion credit facilities are being obtained in connection with Walter's proposed acquisition of Mueller Water Products Inc. The company is dividing into two separate entities - one comprised of its water group (Mueller), which will include Mueller and U.S. Pipe, and the other (Walter) comprised of its energy, homebuilding and financing groups.

Walter's term loan, revolver borrowings, some U.S. Pipe proceeds and super holdco notes will be used to fund the acquisition of Mueller and refinance existing revolver debt.

Mueller's term loan, revolver borrowings and super holdco notes will be used to fund a dividend to U.S. Pipe, a dividend to Walter and refinance existing debt.

Banc of America Securities LLC and Morgan Stanley & Co. are joint lead banks on the deal, with Bank of America the left lead.

Under the acquisition agreement, Walter has agreed to purchase Mueller for $1.91 billion, consisting of about $860 million in cash and the assumption of about $1.05 billion in Mueller debt. The transaction is expected to be accretive by $0.20 to $0.24 per fully diluted share in the first full year after closing.

Walter Industries is a Tampa, Fla.-based diversified company that operates in homebuilding, related financing, and water transmission products, and is also a producer of high-quality metallurgical coal. Mueller is a Decatur, Ill.-based supplier of water infrastructure and delivery systems.

Concentra around 101

Concentra Operating's $525 million six-year term loan B freed up for trading Wednesday afternoon, with levels quoted at 101 bid, 101¼ offered, according to a market source.

The term loan is priced with an interest rate of Libor plus 200 basis points after recently reverse flexing from Libor plus 225 basis points.

The $675 million credit facility (B1/B+) also contains a $150 million five-year revolver.

JPMorgan is the lead bank on the deal that will be used to refinance existing bank debt, to purchase Beech Street Corp. and to purchase Occupational Health & Rehabilitation Inc.

Concentra is an Addison, Texas, provider of services designed to contain health care and disability costs.

NRG bounce back surprise

NRG Energy's term loan performance during Wednesday's session brought bewilderment to many market players since the reason that the paper had previously traded down in the first place is still around.

The NRG bank debt was quoted at 101 1/8 bid, 101 5/8 offered, up from Tuesday's levels, which had dropped to the par bid, 101 context on rumors that the company is looking into purchasing Texas Genco LLC, according to traders.

NRG's rumored interest in Texas Genco had pushed the bank paper lower because of concerns that the debt would be refinanced if a deal between the two companies is reached.

And, these rumors were intensified on Wednesday as numerous news organizations reported that NRG is in advanced discussions to buy Texas Genco in a deal expected to be valued at $5 billion or more - which is why investors were more confused by NRG's bank debt performance than impressed.

"It doesn't make a whole lot of sense," one trader remarked.

"I don't really know why it's back up. Maybe the thought is that the [NRG] term loan stays or that the acquisition isn't really going to happen," a second trader said.

Texas Genco's term loan, on the other hand, stayed at the par 3/8 bid, 101 offered levels during Wednesday's market hours that were seen after the acquisition talk first emerged, according to another trader.

Texas Genco is in-market with a repricing amendment for its approximately $1.6 billion term loan and $150 million funded letter-of-credit facility, under which pricing on the tranches would come down to Libor plus 175 basis points from Libor plus 200 basis points.

When asked whether the repricing could be keeping Texas Genco down near repayment levels, while NRG moved up, the trader responded: "If you look at Allegheny, same ratings, same coupon, it should be trading 50 basis points higher. It doesn't make sense."

NRG is a Princeton, N.J.-based power company. Texas Genco is a Houston-based wholesale electric power generating company.

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