Airlines, autos fall as oil rises; Contec breaks; Idearc dips; L-1 tweaks deal; Texas American sets talk

By Sara Rosenberg

New York, July 30 - The airline sector, including such names as UAL Corp., AMR Corp., Delta Air Lines Inc. and US Airways Group Inc., felt weaker during Wednesday's market hours as oil prices surged higher, and autos, including Ford Motor Co. and General Motors Corp., slipped as well.

In more trading news, Contec Holdings' credit facility freed up for trading, Idearc Inc.'s term loan continued to slide, Huntsman Corp.'s term loan was better after earnings came out and Visteon Corp.'s term loan tightened with its quarterly results.

Over in the primary market, L-1 Identity Solutions Inc. made some changes to its credit facility due to strong demand, including increasing tranche sizes and reducing the original issue discount on the term loan.

Also, Texas American Resources Co. came out with price talk on its revolving credit facility as timing on the launch of the deal firmed up.

The airline sector and the auto sector in general slid lower on Wednesday as oil prices jumped up by more than $4 per barrel, according to traders.

For example, UAL, a Chicago-based airline company, saw its term loan quoted at 72¼ bid, 74¼ offered, down from 73 bid, 75 offered, traders said.

AMR, a Fort Worth, Texas-based airline company, saw it term loan quoted at 90 bid, 92 offered, down from 90½ bid, 92½ offered.

Delta Air Lines, an Atlanta-based airline company, saw its first-lien term loan quoted at 82½ bid, 84½ offered, down from 83 bid, 85 offered, traders continued.

And, US Airways, a Tempe, Ariz.-based airline company, saw its term loan quoted at 65¼ bid, 67¼ offered, down from 65½ bid, 67½ offered.

As for autos, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 79 bid, 79½ offered, down from 80 bid, 81 offered, traders said.

And, General Motors, a Detroit-based automotive company, saw its term loan quoted at 78 bid, 80 offered, down from 81 bid, 82 offered, traders added.

Contec frees to trade

Contec Holdings' credit facility hit the secondary market during the session, with the $185 million term loan B quoted atop its original issue discount price, according to a trader.

The term loan B was seen at 97¾ bid, the trader said.

Pricing on the term loan B is Libor plus 475 basis points with a 3% Libor floor, and it was sold at an original issue discount of 971/2.

At launch, the discount on the B loan was being guided in the 97 to 98 context.

Contec's $205 million credit facility also includes a $20 million revolver that is priced at Libor plus 450 bps.

Barclays is the lead bank on the deal that will be used to help fund the leveraged buyout of the company by Bain Capital.

Contec is a consumer premise equipment repair company providing services to the broadband industry with offices in Schenectady, N.Y.

Idearc softening continues

Idearc's term loan lost a bit more ground on Wednesday as investors still seemed to be reacting to the company's recently announced poor earnings numbers, according to a trader.

The term loan was quoted at 74 bid, 75 offered, down from Tuesday's levels of 74¼ bid, 75¼ offered, and from Monday's levels of 77¼ bid, 78¼ offered, the trader said.

On Tuesday, Idearc revealed that its second-quarter net income was $76 million, or $0.52 per share, versus $109 million, or $0.75 per share, in the same period in 2007. On an adjusted pro forma basis, second quarter net income was $87 million, a decrease of 31.5% from last year.

Revenues for the quarter were $759 million, a 5.7% decrease from $805 million last year and EBITDA for the quarter was $299 million, a 17.9% decrease from $364 million in the same period in 2007. On an adjusted pro forma basis, second-quarter EBITDA was $316 million, a 19.2% decrease from $391 million last year.

For the six months ended June 30, the company reported net income of $187 million, or $1.28 per share, compared to $212 million, or $1.45 per share, in the same period in 2007. On an adjusted pro forma basis, year-to-date net income was $203 million, a 17.5% decrease versus last year.

Revenues for the six-month period were $1.529 billion, down 5.1% from $1.611 billion last year, and EBITDA for the six months was $658 million, down 8.4% from $718 million last year. On an adjusted pro forma basis, year-to-date EBITDA was $683 million, an 11.3% decrease compared to $770 million last year.

Idearc is a Dallas-based provider of yellow and white page directories and related advertising products.

Huntsman inches higher

Huntsman's term loan was a touch better on Wednesday after the company announced second-quarter financials, even though the results fell shy of analyst estimates, according to a trader.

The term loan was quoted at 93¾ bid, 94¾ offered, up from 93½ bid, 94½ offered, the trader said.

For the quarter, revenues were $2.8957 billion, an increase of 17%, compared to $2.4712 billion for the second quarter of 2007, and an increase of 14% compared to $2.5404 billion for the first quarter of 2008.

Net income for the second quarter was $23.7 million, or $0.10 per diluted share, compared to a net loss of $70.9 million, or $0.30 loss per diluted share, for the same period in 2007 and $7.3 million, or $0.03 per diluted share, for the first quarter of 2008.

Adjusted net income from continuing operations for the quarter was $19.9 million, or $0.09 per diluted share, compared to $83.8 million, or $0.36 per diluted share, for the same period in 2007 and $16.9 million, or $0.07 per diluted share, for the first quarter of 2008.

Adjusted EBITDA from continuing operations for the quarter was $209.8 million, compared to $246.4 million in the second quarter of 2007 and $188.3 million for the first quarter of 2008.

For the first six months of 2008, net income was $31 million, or $0.13 per share, compared to a new loss of $24.3 million, or $0.10 per share, last year.

Adjusted net income for the six months was $36.8 million, or $0.16 per share, compared to $141.2 million, or $0.60 per share, last year.

And, adjusted EBITDA for the six-month period was $398.1 million, compared to $490.9 million last year.

"I am very pleased with our results in the second quarter. Adjusted EBITDA was $209.8 million, an increase of 11% as compared to the first-quarter results. This increase in profitability was achieved in spite of a challenging raw material environment and the continued decline in the value of the U.S. dollar," said Peter R. Huntsman, president and chief executive officer, in the release.

"As we look forward to the second half of 2008, we are encouraged by the recent moderation in crude oil and natural gas prices that we have seen in the past several weeks. This, together with the aggressive actions we have recently taken to increase our selling prices, is expected to result in further opportunities to increase margins in many of our products. We expect that Adjusted EBITDA in the second half of the year will be stronger than the results in both the first half of 2008 and the second half of 2007," Huntsman added in the release.

Visteon levels narrow

Visteon's term loan saw a tightening in levels as the offer side came in closer to the bid side following the release of second-quarter results, according to a trader.

The term loan was quoted at 73½ bid, 74½ offered, compared to previous levels of 73½ bid, 75½ offered, the trader said.

"Earnings seemed pretty good, but [the loan] didn't rally on it," the trader added.

For the second quarter, Visteon reported a net loss of $42 million, or $0.32 per share, compared to a net loss of $67 million, or $0.52 per share, in the same period last year.

Total sales for the quarter were $2.905 billion, versus total sales of $2.974 billion in second quarter 2007.

Operating income was $53 million for the quarter, an improvement of $44 million from the same period in 2007, driven by increased product gross margin, partially offset by unreimbursed restructuring and other qualifying costs and implementation costs associated with the company's overhead cost reduction initiative.

EBIT-R was $78 million for the quarter, an improvement of $63 million over last year.

Cash provided by operating activities for the quarter was $133 million, $13 million lower than last year, and free cash flow was $53 million, compared with $66 million in the same period of 2007.

As of June 30, Visteon's cash balances totaled $1.506 billion, compared with $1.758 billion as of Dec. 31, 2007, and total debt was $2.665 billion, about $180 million lower than year-end 2007.

For the first six months of the year, the company's net loss was $147 million, or $1.14 per share, compared to a net loss of $220 million, or $1.70 per share last year.

Total sales for first half were $5.765 billion, down from $5.862 billion in the same period 2007.

EBIT-R for the six-month period was $129 million, up $160 million over the first six months of 2007.

Cash from operations was positive $7 million for the first six months, down from $15 million in the same period a year ago, and free cash flow was a use of $147 million, compared with $129 million for the same period the previous year.

"Our second-quarter and first-half results demonstrate Visteon's geographic diversification, as we improved our financial performance despite a difficult North American market," said Donald J. Stebbins, president and chief executive officer, in a news release.

"We expanded gross margins by almost 50% and increased operating income nearly five-fold due to steady progress on our restructuring plan, our focus on reducing overhead costs and our drive to improve operational efficiency. We have also addressed our U.K. manufacturing losses through divestitures and commercial arrangements," Stebbins added in the release.

Also on Wednesday, Visteon revised its full year 2008 sales down $100 million to $10 billion from $10.1 billion.

The full year outlook for both EBIT-R and free cash flow was reaffirmed, with EBIT-R expected to be in the range of negative $25 million to $25 million and free cash flow expected to be in the range of negative $350 million to negative $250 million.

Visteon is a Van Buren Township, Mich.-based automotive supplier that designs, engineers and manufactures climate, interior, electronic and lighting products for vehicle manufacturers, and also provides a range of products and services to aftermarket customers.

L-1 reworks credit facility

Moving to new deal happenings, L-1 Identity Solutions came out with revisions to its in market credit facility, upsizing both the revolver and the term loan, and tightening the term loan original issue discount, according to a buyside source.

Under the changes, the five-year revolver is now sized at $135 million, up from $100 million, while pricing was left unchanged at Libor plus 375 basis points with a 50 bps commitment fee, the source said.

As for the five-year term loan, that is now sized at $300 million, up from $250 million, and while pricing was left at Libor plus 450 bps with a 3% Libor floor, the original issue discount was lowered to 98½ from 98, the source continued.

Recommitments were due from lenders on Wednesday by 5 p.m. ET.

The buyside source said that allocations should probably go out on Thursday or on Friday "since they're shooting for closing the deal on Aug. 5."

Bank of America and Wachovia are the joint lead arrangers and bookrunners on the now $435 million, up from $350 million, senior secured deal (Ba3/BB+), with Bank of America the administrative agent and Wachovia the syndication agent.

According to the original commitment letter filed with the Securities and Exchange Commission, pricing on the credit facility was going to be based on corporate family ratings, which emerged as B2/BB-.

On the term loan, the filing said that if corporate family ratings were Ba3/BB-, pricing would be Libor plus 375 bps; if ratings were Ba3/B+ or B1/BB-, pricing would be Libor plus 400 bps; if ratings were B1/B+, pricing would be Libor plus 450 bps; and if ratings were lower or unavailable, pricing would be Libor plus 500 bps.

As for the revolver, the filing said that if corporate family ratings were Ba3/BB-, pricing would be Libor plus 325 bps; if ratings were Ba3/B+ or B1/BB-, pricing would be Libor plus 350 bps; if ratings were B1/B+, pricing would be Libor plus 375 bps; and if ratings were lower or unavailable, pricing would be Libor plus 400 bps.

The commitment letter also said that the original issue discount on the term loan would be based on corporate ratings as well, so if ratings were Ba3/BB-, the discount was expected to be at 99; if ratings were Ba3/B+ or B1/BB-, the discount was expected to be at 981/2; and if ratings were lower or unavailable, the discount was expected to be at 98.

Amortization on the term loan will be 5% in year one, 10% in year two, 20% in years three and four, and 45% in year five.

Financial covenants 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.

Proceeds will be used to help fund the tender offer for Digimarc Corp.'s outstanding common stock for $12.25 per share. This price was adjusted from $11.90 per share based on the number of shares of Digimarc common stock expected to be outstanding at the expiration of the tender offer. Total cash consideration to be paid by L-1 remained unchanged at $310 million.

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 solutions for more than 25 countries.

Digimarc stockholders will also receive shares in DMRC Corp., which will hold Digimarc's digital watermarking business and Digimarc's cash as of the completion of the transaction.

Consummation of the transaction requires the completion 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.

Following the closing of the transaction, on a pro-forma calendar 2008 basis, L-1 expects to have revenue of about $670 million, adjusted EBITDA of $110 million including operational efficiencies, unlevered free cash flow of $75 million and a backlog of about $1 billion.

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

Texas American revolver talk surfaces

Texas American Resources released price talk on its proposed $125 million three-year reserve-based revolving credit facility now that a conference call has been scheduled for Thursday afternoon to launch the deal.

Previously it was known that the revolver would launch this week but a specific date had been unavailable.

The revolver, which is being launched to a small club of banks, is being talked at Libor plus 175 bps to Libor plus 250 bps based on use, and there is a 50 bps commitment fee, a market source told Prospect News.

Upfront fees are expected to be announced on the call, the source added.

BNP Paribas is the lead bank on the revolver, which has an initial borrowing base of $75 million.

As was previously reported, the company is also getting a $175 million second-lien term loan that launched with a bank meeting last week with price talk of Libor plus 850 bps with a 3.25% Libor floor, and is being offered at an original issue discount of 97.

Credit Suisse and BNP Paribas are the lead banks on the second-lien deal, with Credit Suisse the left lead.

Proceeds from the new bank debt will be used to refinance existing debt and for general corporate purposes.

Texas American Resources is an Austin, Texas, energy company.

Clear Channel closes

Bain Capital Partners LLC and Thomas H. Lee Partners LP completed their buyout of Clear Channel Communications Inc. in a transaction valued at about $24 billion, according to a news release.

To help fund the transaction, Clear Channel got a new $16.7706 billion senior secured credit facility, consisting of a $10.7 billion 71/2-year term loan B (B1/B), a $705.6 million 71/2-year asset sale term C (B1/B), a $1.25 billion 71/2-year delayed-draw term loan (B1/B), a $690 million six-year receivables-based revolver, a $1.425 billion six-year term loan A (B1/B) and a $2 billion six-year revolver (B1/B) that is split into $1.85 billion in U.S. dollars and $150 million available in alternate currencies.

The term loan B, term loan C and delayed-draw term loan are priced at Libor plus 365 bps with a step down to Libor plus 340 bps at less than 7:1 total leverage. The delayed-draw term loan has a 182.5 bps commitment fee.

Pricing on the receivables-based revolver is initially set at Libor plus 240 bps, but it can range from Libor plus 215 bps to 240 bps, depending on leverage. This tranche has a 37.5 bps commitment fee.

Initial pricing on the term loan A and the revolver is Libor plus 340 bps, but it can range from Libor plus 290 bps to 340 bps, depending on leverage. The revolver has a 50 bps commitment fee.

Citigroup, Deutsche Bank and Morgan Stanley acted as the joint lead arrangers and bookrunners on the deal, with Citi the administrative agent, Deutsche and Morgan Stanley the syndication agents, and Credit Suisse, RBS and Wachovia the co-documentation agents.

Covenants under the facility include a maximum consolidated senior secured net debt to adjusted EBITDA ratio requirement.

Clear Channel is a San Antonio media and entertainment company specializing in "gone from home" entertainment and information services.

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