Covalence upsizes, cuts B loan spread; UAL, CRC Health free to trade; Goodyear steadies

By Sara Rosenberg

New York, Feb. 1 - Covalence Specialty Materials reworked its credit facility, increasing the size of its term loan B, while reducing pricing on the tranche, and adding a new second-lien term loan to the capital structure.

In secondary happenings, UAL Corp.'s exit facility broke for trading, with the term loan closing the day wrapped around 102, and CRC Health Group's credit facility broke for trading as well, with its term loan trading around the mid-101 context.

Also in the secondary, Goodyear Tire & Rubber Co.'s second-lien loan steadied after a somewhat tumultuous reaction to the release of disappointing projected fourth-quarter results during the previous session.

Covalence made a round of changes to its credit facility on Wednesday, increasing the size of the term loan B by $25 million and cutting pricing on the tranche by 50 basis points, and adding a new second-lien term loan to the deal.

The seven-year term loan B is now sized at $350 million, compared to an original size of $325 million, and pricing was reverse flexed to Libor plus 175 basis points from original price talk at launch of Libor plus 225 basis points, according to a fund manager.

The second-lien term loan is sized at $175 million and price talk on the tranche was released as Libor plus 350 basis points, the fund manager added.

Covalence decided to upsize its term loan B and add the second-lien term loan on the heels of the decision to downsize its bond offering by $230 million to $265 million.

The company now plans on only selling $265 million of 10-year senior subordinated notes, with price talk currently set at 10¼% to 10½%.

The proposed $200 million tranche of second-lien senior secured floating-rate notes was removed from the bond structure altogether, taking form in the second-lien term loan and the incremental term loan B debt.

Furthermore, there was a $30 million working capital adjustment to the financing.

Bank of America, Credit Suisse, Merrill Lynch and Morgan Stanley are the lead banks on the now $700 million credit facility (Ba3/B+), which all-in-all was increased from an original size of $500 million.

In addition to the term loan B and the second-lien loan, the facility contains a $175 million six-year revolver with a 50 basis point commitment fee. Price talk on the revolver was initially set at Libor plus 225 basis points. As to whether this pricing came down to Libor plus 175 basis points with the term loan B was unavailable prior to press time.

Proceeds from the credit facility and bonds will be used to help fund Apollo Management LP's purchase of Tyco International Ltd.'s plastics and adhesives business, which is being renamed Covalence Specialty Materials.

Covalence is a producer of trash bags, stretch film and plastic sheeting, as well as a leading global producer of duct tape.

Hilton tweaks tranching, pricing

Hilton Hotels Corp. downsized its term loan B, while at the same time reverse flexing pricing on the tranche, and upsized its revolver as the demand for pro rata paper was overwhelming, according to a market source.

The term loan B is now sized at $500 million, down from an original size of $750 million, and pricing was reduced to Libor plus 137.5 basis points from original price talk at launch of Libor plus 162.5 basis points, the source said.

Meanwhile, the company's multi-currency revolver is now sized at $3.25 billion, up from an original size of $2.75 billion - resulting in a $250 million increase in the total size of the credit facility. Pricing on the revolver remained at Libor plus 150 basis points, the source continued.

Hilton's $2 billion multi-currency term loan A was left unchanged in terms of size and pricing, which is also currently set at Libor plus 150 basis points.

"Demand was huge on all tranches, but the company opted for a bigger revolver...more than $9 billion plus in pro rata so banks will still come down a lot in final allocations, including the arrangers," the source added.

Bank of America and UBS are the lead banks on the credit facility.

Proceeds from the $5.75 billion (Ba2) credit facility will be used to help fund Hilton Hotels' approximately £3.3 billion, or $5.71 billion, all-cash acquisition of the lodging assets of Hilton Group plc.

The $250 million of acquisition financing that was taken out of the company's term loan B will now be drawn under the revolving credit facility, the source explained.

Hilton also plans on using $1.22 billion in cash on hand to fund the purchase and will assume $130 million of debt.

Allocations on the credit facility aren't expected to go out for another week or so, with the facility targeted to close in mid-February and the acquisition targeted to close around mid-March.

Pro forma credit statistics for 2006 are debt to EBITDA of 4.64x, adjusted debt to EBITDAR of 4.88x, EBITDA to net interest expense of 3.3x and fixed to floating-rate debt of 45% to 55%.

The transaction, which is expected to close in the first quarter of 2006, is subject to a number of conditions, including receipt of certain competition and governmental clearances, and the approval of Hilton Group shareholders.

Hilton is a Beverly Hills, Calif., lodging company.

UAL trades around 102

UAL allocated its $3 billion six-year exit facility (B1/B+) on Wednesday, with the $2.8 billion term loan freeing for trading around 101 1/8 bid, 101½ offered before moving upwards to 101¾ bid, 102¼ offered where it closed the session, according to a trader.

The term loan is priced with an interest rate of Libor plus 375 basis points. During syndication, the term loan was upsized from $2.7 billion and pricing was reverse flexed from Libor plus 450 basis points.

UAL's exit facility also contains a $200 million revolver with an interest rate of Libor plus 375 basis points and a 50 basis point commitment fee. During syndication, this tranche was downsized from $300 million and pricing was also reverse flexed from Libor plus 450 basis points.

Financial covenants under the credit facility include a maximum fixed charge coverage ratio of 0.90:1 for the 12-month period ending December 2006 that gradually increases all the way up to 1.20:1 for the 12-month period ending December 2009 and thereafter.

In addition, there's a covenant that requires the company to maintain at least $1.2 billion of unrestricted cash, which then reduces to $1 billion after Dec. 31 if the company is in compliance with the fixed charge coverage ratio.

JPMorgan and Citigroup acted as the joint lead arrangers and joint bookrunners on the deal, with JPMorgan the left lead. General Electric Capital Corp. acted as the syndication agent.

Proceeds from the facility, which closed Wednesday in connection with the company's emergence from Chapter 11, are being used to repay the company's debtor-in-possession facility, to make other required payments, to finance the working capital needs and for other general corporate purposes.

The Elk Grove Township, Ill., airline carrier anticipates exiting from Chapter 11 in February.

CRC breaks atop 101

CRC Health also allocated its credit facility on Wednesday to see its $245 million term loan B quoted at 101 1/8 bid, 101 7/8 offered pretty steadily from the break until the close, according to a trader.

The term loan B is priced with an interest rate of Libor plus 225 basis points. During syndication, the tranche was upsized from $225 million and pricing was reverse flexed from Libor plus 250 basis points.

The $20 million that was added to the term loan B came out of the company's bond offering, which was been reduced to a size of $200 million from $220 million.

CRC's $345 million credit facility (B1/B) also contains a $100 million revolver with an interest rate of Libor plus 250 basis points.

Citigroup and JPMorgan are the lead banks on the deal, with Citi the left lead.

Proceeds will be used to help fund Bain Capital's leveraged buyout of the company. Bain is purchasing CRC from North Castle Partners and DLJ Merchant Banking Partners in a transaction valued at $720 million.

CRC is a Cupertino, Calif., provider of drug and alcohol treatment services.

Goodyear stabilizes

Goodyear's second-lien term loan felt stronger on Wednesday as levels stabilized after bouncing around during the previous session on lower-than-expected projected fourth-quarter numbers, according to a trader.

The second-lien loan closed the session quoted at 101 bid, 101½ offered, not a big change from Tuesday's closing levels of 101 bid, 101 3/8 offered, but a nice improvement from the below 101 trading levels that were seen around midday Tuesday, the trader explained.

Late in the day Monday, Goodyear announced that, excluding the impact of hurricanes in the U.S. Gulf Coast region, it expects fourth-quarter segment operating income of about $238 million, basically in line with results from the prior-year period. Investors were disappointed by this news since they had been expecting a positive quarter as opposed to comparable results.

The steadying of Goodyear's term loan could be a result of investors simply coming to terms with the projected earnings announcement.

However, also helping the Akron, Ohio-based tire company's paper could have been Wednesday's solid two-way trading flow that was seen in the overall loan market, which was up about another eighth of a point on the day.

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