Emdeon anticipates midweek launch; LCDX unchanged on week; Contech trades in distressed zone

By Paul A. Harris

Portland, Ore., Sept. 30 - In the primary market, dealers aim to launch the Emdeon Inc. $1.2 billion term loan during the week ahead.

In the secondary market, cash loans were marked lower on Friday, but outperformed both equities and high-yield bonds, according to a bank loan trader based on the East Coast of the United States.

The LCDX 16 bank loan index ended the session down 1/8 of a point at 92½ bid, 93 offered, but was unchanged on the week, the trader added.

Although trading activity was extremely muted, the loans of Contech Construction Products, Inc. were trading in deeply distressed territory, at 66 bid, 71 offered, on the expectation that the company would be party to a prepackaged Chapter 11 bankruptcy, the trader said.

Emdeon midweek launch

Bank of America, Citigroup, Barclays and Goldman Sachs are expected to launch Emdeon's term loan B during the middle part of the week ahead, a syndicate source said on Friday.

A Tuesday or Wednesday launch is likely, the source added.

The existing Emdeon loan, which is being taken out in the new deal, was trading at 99 bid, par offered on Friday, according to a trader who added that the new deal should go well as investors are expected to desire to maintain exposure to the credit.

The new term loan is part of an overall $1.325 billion senior secured credit facility (Ba3), which also includes a $125 million five-year revolver

There is an accordion feature under the credit facility of $300 million plus an unlimited amount as long as the consolidated first-lien net leverage ratio is less than 4:1.

Proceeds will be used to help fund the buyout of the company by Blackstone Capital Partners VI LP for $19.00 per share in cash. The transaction is valued at about $3 billion.

Other funds for the transaction will come from $750 million of senior unsecured notes that are backed by a commitment for a $750 million one-year senior unsecured bridge loan.

That bridge loan is presently in the process of syndication, according to the syndicate source. The placement of the Rule 144A bonds backing the bridge is likely to more closely resemble a private placement than a widely marketed high-yield bond deal, the source added.

Diamond Foods

Arrangers led by Bank of America Merrill Lynch are expected to allocate the Diamond Foods Inc. $1.75 billion pro rata credit facility in the near future, according to a market source.

The facility, to help fund the $2.35 billion acquisition of Pringles from Proctor & Gamble, is comprised of a $1.25 billion term loan A and a $500 million revolver.

Leverage-based pricing opens at Libor plus 250 basis points and ranges from Libor plus 200 bps to 275 bps.

There is a 35 bps undrawn fee on the revolver.

Previously in filings with the Securities and Exchange Commission, the bank debt was expected to come in the form of a $700 million five-year senior credit facility at Diamond and a $1.05 billion credit facility at Pringles.

Proceeds will be used to repay an existing credit facility at Diamond and for working capital and other general corporate purposes.

Week ahead: Kinetic in view

Kinetic Concepts Inc. is expected to draw a lot of attention in the week ahead, sources said on Friday.

The company will begin marketing its term loan at a bank meeting on Monday in London. A U.S. bank meeting is expected to follow later in the week.

Although the term loan portion of the financing has been given as $2.6 billion, the final size remains to be determined and could be revised downward, according to a syndicate source.

The final size of the expected $2.15 billion of high-yield bonds is also subject to possible revision, the source added.

The $2.15 billion bridge loan backing the bonds, now in the process of syndication, will not change, the source added.

Bank of America Merrill Lynch, Morgan Stanley, Credit Suisse and RBC are leading the term loan.

Loans outperforming

Bank loans vastly outperformed both equities and high-yield bonds during the month of September, a trader said on Friday.

Bank loans ended the month 0.63% higher, while junk bonds fell 2.47%, the trader said.

"That gap will widen after today," the trader said during a telephone conversation, which took place shortly after the Friday close.

In part, junk bonds have come under pressure due to the unwinding of the Japanese carry trade, which has pulled as much as $2 billion out of that asset class, the source said.

Yield-hungry Japanese investors, who found the U.S. junk bond market to their liking earlier in the year, headed for the gates as the dollar depreciated against the yen, the trader explained.

On Friday, the CDX 17 HY index coughed up 1¼ points to finish at 87 1/16 bid 87 7/16 offered.

Whether or not the relative outperformance of leveraged loans will translate into a calendar remains to be seen, sources say.

Big deals, such as the above-mentioned Kinetic Concepts loan, are becoming more challenging to syndicate and are resulting in sloppier executions, a debt capital markets banker contended during a Friday morning conversation.

Given the uncertainties stoking the volatility in the global capital markets, it's just not a great time to bring a bank loan, the sellsider added.

A trader agreed and added that activity levels will almost certainly remain modest until there is some clarity on the euro zone credit situation.

BJ's closes

BJ's Wholesale Club, Inc. announced in a Friday press release that it has completed its acquisition by Beacon Holding Inc. for $51.25 per share in cash.

The transaction was approved by the company's stockholders at a special meeting of stockholders held on Sept. 9.

BJ's used a $1.075 billion covenant-light seven-year first-lien term loan, which was priced at 95, to help fund the deal.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.