Secondary bank market rallies as demand-side equation changes

By Sara Rosenberg

New York, Nov. 20 - The secondary bank loan market generally saw an improvement on Wednesday as a change in the demand side prompted more aggressive bids, according to a trader.

"Everything is up a point or two today - Nextel, Charter," a trader said.

Asked what is causing the slight rally, the trader responded, "Inflows in the bond markets, CLO's are ramping up and some from the fixed-income market are buying as well. [Also], primary deals are either getting pulled or hiked up so there are more aggressive bids."

Recently, new deals in the primary bank market have seen some specific features added in order to make them more attractive to investors and lenders, including higher spreads. The average institutional spread for BB/BB- rated issues is now above Libor plus 400 basis points. Other features include higher upfront fees, Libor floors, call protection, prepayment penalties and amortization requirements.

Meanwhile, in the primary, Del Monte Foods Co.'s retail bank meeting is coming up on Thursday. Agent meetings were held on Monday and Wednesday.

The loan is meeting some investor skepticism due in large part to the $300 million term loan A-1 with an interest rate of Libor plus 350 basis points, which is acting like a bridge loan until proceeds from a proposed bond sale can be used to repay the debt, according to market sources. If the bond deal is not successful, the term A-1 will stay in place and will remain pari passu to the bank debt. Senior lenders are slightly hesitant that there may end up being more senior secured debt than is currently anticipated.

"How the bridge loan is sitting in the capital structure worries me," a fund manager said. "We're in the existing Del Monte [facility] and I assume we'll do this one. It also depends on how other people receive it."

However, not all people following the deal are worried about the bank facility being fully syndicated.

"I think the meeting should spark some interest from all those invited," a market professional previously told Prospect News. "The deal is priced to move and I believe it will attract a pretty significant amount of interest."

The facility consists of a $350 million six-year revolver with an interest rate of Libor plus 350 basis points, a $250 million six-year term loan A with an interest rate of Libor plus 350 basis points and a $470 million eight-year term loan with an interest rate of Libor plus 400 basis points.

Also, there will be $300 million of senior secured floating rate notes, which will basically act like a term loan. Interest on the floating rate notes is Libor plus 425 basis points.

Bank of America, JPMorgan Chase, UBS Warburg and Morgan Stanley are the lead banks on the deal that will be used to help fund the merger with certain H.J. Heinz Co. businesses.

Del Monte is a San Francisco processed food company.

In follow-up news, Bell ActiMedia Inc. recently restructured its loan splitting the term loan B into a term loan B and a term loan C, according to market sources.

The facility now consists of a $63 million (C$100 million) six-year revolver with an interest rate of Libor plus 300 basis points, a $252 million (C$400 million) six-year term loan A with an interest rate of Libor plus 300 basis points, a $100 million term loan B with an interest rate of Libor plus 400 basis points and a $620 million term loan C with an interest rate of Libor plus 425 basis points.

CIBC World Markets, Scotia Capital and Credit Suisse First Boston are the lead banks on the deal, which will help finance the acquisition of the BCE directories business by Kohlberg Kravis Roberts and the Teachers' Merchant Bank.

Grant Prideco Inc. launched its new $240 million credit facility on Tuesday, according to a market source. Deutsche Bank Trust Co. Americas is the lead bank on the deal.

The loan consists of a $190 million revolver with an interest rate of Libor plus 250 basis points and a $50 million term loan B with an interest rate of Libor plus 275 basis points, the source said.

"It's an asset-based loan," he added.

Proceeds will be used to help finance the acquisition of Reed-Hycalog and replace the existing credit facility.

Grant Prideco is a Houston-based provider of equipment and services to the oil and gas industry.

Constar International Inc. closed on its $250 million credit facility (B1/BB-), which consists of a $150 million seven-year term loan B at Libor plus 450 basis points and a $100 million five-year revolver at Libor plus 300 basis points.

Proceeds from the term loan were used to repay debt to Crown Cork and Seal. The revolver is being used for working capital, general corporate purposes and to provide for the issuance of letters of credit.

Citibank and Deutsche Bank led the deal.

Constar is a Philadelphia producer of PET plastic containers for food and beverages.

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