AAi.FosterGrant syndication struggle could lead to major tweaks; Sears Canada sees momentum

By Sara Rosenberg

New York, Nov. 18 - AAi.FosterGrant Inc. is considering making a number of changes to its credit facility to make it a more attractive piece of paper to investors, including raising price talk for a second time, a buyside market source said.

Also in the primary, Sears Canada Inc.'s U.S. term loan has caught the attention of some institutional players as orders had already started coming into the books within two days of launch.

AAi.FosterGrant is talking to lenders about reworking its credit facility in such a way as to make it a juicy enough investment to get lenders on board, according to the buyside source.

For starters, current discussion has price talk on the $150 million first-lien term loan B (B2) potentially being raised to Libor plus 400 basis points from revised price talk of Libor plus 350 basis points and original price talk of Libor plus 275 basis points, the source said. Adding the 101 soft call protection and the 50 basis point original issue discount to the tranche - which was announced when the first pricing increase was being discussed - is still under consideration.

In addition, the syndicate is considering removing the provision in the first-lien term loan credit agreement that would have allowed the company to take out incremental first-lien debt at a later date. The size of this accordion feature was scheduled to be determined at a later date.

And, the amortization schedule on the first-lien term loan may undergo some changes as well, as the syndicate is thinking of increasing it from the original 1% per year amount (balloon payment due at maturity) with which the deal was launched, the source said.

As for the $50 million second-lien term loan (B3), the syndicate is discussing raising pricing to Libor plus 775 basis points from revised price talk of Libor plus 700 basis points and original price talk of Libor plus 625 basis points, the source continued. Adding the 100 basis point original issue discount to the tranche that was announced when the first pricing increase was being discussed is still under consideration. The hard call protection of 102 in year one and 101 in year two that the second lien was launched with is currently not expected to be changed.

The $215 million credit facility, which also contains a $15 million revolver (B2), will be used for a dividend recapitalization.

Since the deal first hit the market, it has been somewhat overshadowed by a dispute over the payment of soft call protection to existing lenders. Under the existing term loan B, lenders are entitled to 101 soft call protection in the case of a refinancing. However, lenders were being told that they may not - and now that they definitely will not - be getting paid down at the 101 call protection premium because the new credit facility is part of a recapitalization, not a refinancing.

Although some were thrown off by the non-payment of call protection decision, this is not considered to be the primary problem with this new deal.

"I think they would have struggled to get this done even if they paid the call protection. They're raising leverage here quite a bit. They're taking out a dividend. And, they're trying to reduce pricing way below where it was - Libor plus 500 basis points on the existing term loan B," the buyside source explained.

"People definitely need changes to the original structure. As to whether the changes that are being discussed will be enough remains to be seen.

"I think JP already underwrote the deal so they're kind of handcuffed as to where they can get it done. But I think it should go to Libor plus 450 on the first lien and they should add hard call protection, not soft, and get rid of the incremental debt feature," the source added.

JPMorgan and General Electric Capital Corp. are the lead banks on the credit facility, with JPMorgan the left lead.

AAi.FosterGrant is a Smithfield, R.I., eyewear and jewelry company.

Sears Canada nets orders

Sears Canada's term loan has sparked interest in investors since launching Wednesday as "a number of commitments" had already come in on the deal by Friday morning, a market source told Prospect News.

The U.S. dollar equivalent C$200 million seven-year delayed-draw term loan B was launched with opening price talk of Libor plus 175 basis points.

Sears Canada's C$500 million credit facility (Ba1/BBB-) also contains a C$300 million five-year revolver that was launched with opening price talk of Libor plus 150 basis points.

The Bank of Nova Scotia is the lead bank on the deal.

Proceeds from the revolver will be used for general corporate purposes.

Term loan borrowings will be used refinance some medium-term notes that come due on March 15, 2006. It will be on that note expiration date that the term loan will be drawn upon in full.

Sears Canada is a Toronto-based department store chain that is 54% owned by U.S.-based Sears Holdings.

DS Waters up on paydown

DS Waters Enterprises LP's term loan has firmed by about half a point over the past few days on a recent paydown and rating outlook revision, according to a trader.

The term loan was trading firmer on Friday right around 97, the trader added.

A couple of days ago, investment fund Kelso finalized it purchase of 100% of DS Waters equity from Groupe Danone and Suntory International, and as part of the transaction, Kelso paid down some of US Waters' bank debt, the trader explained.

Then on Thursday, Standard & Poor's announced that it was revising the rating outlook on DS Waters to positive from negative because of the significant bank debt repayment and alleviation of near-term liquidity concerns.

DS Waters is an Atlanta-based bottled water company.

El Pollo Loco closes

El Pollo Loco Inc. closed on its new $129.5 million credit facility (B3/B+) Friday, consisting of a $25 million revolver with an interest rate of Libor plus 300 basis points and a $104.5 million term loan B with an interest rate of Libor plus 300 basis points and 101 soft call protection for one year.

During syndication, pricing on the revolver and term loan came up from original talk of Libor plus 275 basis points. Also, the term loan was upsized on two occasions, once from $100 million to 102.5 million and then from $102.5 million to $104.5 million.

The additional term loan funds were used to help compensate for the company's bond deal downsizing and to reduce outstanding borrowings under the revolver.

Proceeds from the credit facility, along with bond proceeds, were used to help fund the leveraged buyout of the company by Trimaran Capital Partners from American Securities Capital Partners LP.

Merrill Lynch and Bank of America acted as the lead banks on the credit facility, with Merrill the left lead.

El Pollo Loco is an Irvine, Calif., quick-service restaurant chain specializing in Mexican-style chicken dishes.

TRW closes

TRW Automotive Holdings Corp. closed on its $300 million term loan B add-on that is priced in line with existing term loan B pricing at Libor plus 150 basis points.

During syndication the size of the add-on was increased from $200 million.

JPMorgan acted as the lead bank on the deal.

Proceeds are being used to replenish liquidity at the company that was used to fund the acquisition of a majority share of Dalphi Metal Espana, SA, a Europe-based manufacturer of airbags and steering wheels, for about $134 million.

In addition, proceeds can also be used for the possible retirement or repurchase of certain of the company's existing debt securities or for other corporate purposes.

TRW is a Livonia, Mich.-based provider of advanced technology products and services for the automotive markets.

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