Xerox better bid, continues to head up since breaking; Allegheny second tier bid rebounds slightly

By Sara Rosenberg

New York, June 25 - Xerox Corp.'s new bank debt, which has seen a pretty notable improvement since breaking last week, was reported to be trading and better bid on Wednesday. Meanwhile the bid on Allegheny Energy Inc.'s second tier bank debt bounced back slightly after dropping by a point and a half the previous day.

Xerox's new term loan was quoted at par 1/8 bid, par 5/8 offered on Wednesday compared to initial trading levels around 99 and the revolver was quoted at 92½ bid, 93½ offered on Wednesday compared to quotes as low as 87, 88 last week, according to traders.

"I think it's a couple of investment banks bidding it up," one trader said. Asked whether the rise could be a function of the company's completion of its recapitalization plan, the trader responded: "It could have something to do with it. But the bank debt was contingent on everything else getting done. So if they didn't get it done the bank deal would have just disappeared."

The credit facility (B1/BB-/BBB-) consists of a $700 million revolver and a $300 million term loan, both due in September 2008 and both initially priced at Libor plus 275 basis points, a decrease of about 2% from the existing facility and lower than the initial price talk of Libor plus 300 basis points. The interest rate can range from Libor plus 175 to 300 basis points.

Furthermore, covenants are more reflective of the company's improved financial position, according to a news release. For example, there are no mandatory prepayments under the new facility.

Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan, Merrill Lynch and UBS are the lead bank on the deal, which closed on Wednesday.

Also as part of the recapitalization, the Stamford, Conn. document company sold $920 million of mandatory convertible stock, $472 million of new common stock, $700 million of seven-year 7 1/8% senior unsecured notes due 2010 and $550 million of 7 5/8% 10-year senior unsecured notes due 2013.

Proceeds from these transactions are being used by the company to repay the $3.1 billion outstanding under its current credit facility. The company does not currently intend to draw the revolver on an ongoing basis.

"The successful completion of this financing is evidence of investors' confidence in Xerox's solid operations and effective strategy to grow the business through the industry's broadest portfolio of services and systems," said Lawrence A. Zimmerman, senior vice president and chief financial officer, in a news release. "Demand for the offerings exceeded initial expectations, further strengthening Xerox's balance sheet and providing even more financial and operating flexibility to build on Xerox's growth initiatives."

Allegheny's second lien bank debt was a little better bid on Wednesday as investors had some more time to digest the company's recent announcement that it is talking to its bank lenders about additional liquidity and that earnings and cash flow will be below previous forecasts.

The tranche was quoted at 95½ bid, 96½ offered, according to a trader, compared to Tuesday's level of 94¼ bid, 96½ offered.

The first lien bank debt remained around 99½ bid, par ¼ offered, according to a second trader.

After market hours on Monday, the Hagerstown, Md. energy company announced that its common equity ratio has fallen below the level required under certain key Securities and Exchange Commission authorizations. As a result, the company will be required to obtain further SEC authorizations to engage in financing and other activities that are critical to its near-term financial viability.

Allegheny said it expects earnings and cash flow results will be "substantially below" its projections in February after it completed its bank refinancing.

Furthermore, the company is in discussions with its senior bank lenders with respect to these regulatory issues, its performance in general, and the sources or availability of additional liquidity. Talks with lenders regarding issues concerning covenant compliance will also be pursued.

In response to this news, the company's first lien bank debt dropped a quarter of a point on Tuesday and the second lien paper fell by 1½ points.

ConMed Corp.'s new $165 million add-on to its term loan B (Ba3), which is priced at Libor plus 275 basis points, continued to be quoted in the 101 range on Wednesday, after breaking for trading in that context on Tuesday, according to a trader. The tranche had been offered at par.

JPMorgan is the lead bank on the Utica, N.Y. medical technology company's deal, which will be used to pay off $112.7 million of 9% senior subordinated bonds, fund the $5 million call premium and pay off revolver debt of $47.3 million.

In follow-up news, Domino's Inc.'s $610 million seven-year term loan B flexed down by 25 basis points to Libor plus 300 basis points earlier this week, according to a syndicate source, making it yet another deal in which pricing on the institutional tranche is lower than pricing on the pro rata.

The $125 million six-year revolver is priced at Libor plus 325 basis points.

JPMorgan is leading the Ann Arbor, Mich. pizza chain's deal (B1/B+), which is part of the company's recapitalization plan.

Other recent examples in which this lower institutional pricing has been seen include Nellson Nutraceutical Inc. and Alaris Medical Inc.

Nellson Nutraceutical flexed its $260 million term loan B down by 50 basis points to Libor plus 300 basis points last week. The company's $25 million revolver is priced at Libor plus 400 basis points. However, in this specific case, the institutional tranche was always expected to be priced lower than the pro rata as original price talk had the B loan at Libor plus 350 basis points.

UBS Investment Bank and Goldman Sachs are leading the Irwindale, Calif. nutritional bar and powder manufacturer's deal, which will be used to help fund the acquisition of Bariatrix Products International Inc.

Alaris Medical's $235 million six-year term loan (B1/BB-) was flexed down by 50 basis points early last week to Libor plus 275 basis points. The $30 million five-year revolver is priced at Libor plus 300 basis points.

Citigroup and UBS Investment Bank are joint lead arrangers, with CIBC and Bear Stearns involved in the deal as well.

Proceeds will be used by the San Diego developer of medication safety solutions to fund a tender offer, reduce debt and for general corporate purposes.

Affinity Group Inc. closed on its $175 million credit facility (Ba2/BB-), according to a source close to the deal. FleetBoston and CIBC were the lead banks on the deal.

The facility consists of a $35 million five-year revolver with an interest rate of Libor plus 350 basis points and a $140 million six-year term loan B with an interest rate of Libor plus 400 basis points.

Proceeds are being used by the Englewood, Colo. direct marketing company to repay existing bank debt, repurchase a portion of the notes at Affinity Group Holding, Inc. and fund a shareholder distribution.

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