Sears Canada shifts funds; United Subcontractors ups second-lien spread; Pre-Paid Legal pulls deal

By Sara Rosenberg

New York, Dec. 14 - Sears Canada Inc. shifted some funds from its revolver into its delayed-draw term loan, added a step down in term loan pricing and reduced the term loan ticking fee. Also, United Subcontractors Inc. came out with a pricing increase on its second-lien term loan on the heels of its first-lien flex up.

Meanwhile, Pre-Paid Legal Services Inc. pulled its credit facility from market as litigation and a rating downgrade created a hiccup in the syndication process.

Sears Canada finalized tweaks to its credit facility as the deal is getting ready to allocate Thursday and close next week, with C$100 million moved out of its revolver and into its delayed-draw term loan, a pricing step down added to the delayed-draw tranche and the delayed-draw ticking fee cut by 25 basis points, according to a market source.

The five-year revolver is now sized at C$200 million, down from an original size of C$300 million, while pricing was left unchanged at Libor plus 150 basis points, the source said.

By contrast, the U.S dollar equivalent seven-year delayed-draw term loan B is now sized at C$300 million, up from C$200 million, and, while pricing was left unchanged at Libor plus 175 basis points, a step down to Libor plus 150 basis points was added to the tranche that will take affect upon the company meeting a leverage test, the source continued.

In addition, the ticking fee on the delayed-draw term loan B was reduced to 75 basis points from 100 basis points, the source added.

The Bank of Nova Scotia is the lead bank on the C$500 million credit facility (Ba1/BB+).

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.

USI raises second-lien pricing

United Subcontractors flexed pricing higher on its $65 million second-lien term loan (Caa1/B-) to Libor plus 725 basis points from original price talk at launch of Libor plus 650 basis points, according to a market source.

The flex had been somewhat expected by investors as talk had it that syndication on the tranche was struggling.

Soft call protection on the second lien remained unchanged at 102 for one year and 101 for the following year, with the protection kicking in only after six months has passed.

On Tuesday morning, United Subcontractors came out with a pricing increase on its $295 million first-lien term loan (B2/B+) that took the spread to Libor plus 275 basis points from original price talk at launch of Libor plus 250 basis points. Furthermore, the syndicate added 101 soft call protection for one year to the first-lien term loan tranche.

The pricing increase on the second-lien term loan wasn't announced until Tuesday night, the source added.

The company's $400 million credit facility also contains a $40 million revolver (B2/B+).

Citigroup is the lead bank on the deal that will be used to refinance existing debt and fund a dividend payment.

United Subcontractors is a Salt Lake City-based installer of residential and commercial insulation systems and provider of related products and services.

Pre-Paid Legal cancels loan attempt

Pre-Paid Legal Services ended efforts on its proposed $160 million senior secured credit facility (B1/B+) as the company was faced with losing a lawsuit and a rating downgrade by Standard & Poor's during the process, forcing price talk on the deal to increase significantly and syndication to falter.

"After consultation with Scotia Capital and evaluation of market conditions, we decided to terminate our current funding efforts," the company said in a news release.

"Based on our significant cash flow, and the net cash on our balance sheet, this funding effort was never essential to our operations. We anticipated using this funding primarily to continue and accelerate our long-standing share repurchase program. We will continue to utilize our excess cash to repurchase shares and/or pay dividends," the company added in the release.

The $160 million credit facility consisted of a $150 million seven-year term loan and a $10 million five-year revolver. Pricing on both tranches had been flexed higher during syndication to Libor plus 325 basis points from Libor plus 225 basis points on the heels of all the negative news.

The Bank of Nova Scotia was the lead bank on the deal that was going be used to refinance about $30 million in existing bank debt, fund further share repurchases, dividends and general working capital purposes.

Around mid-November the company announced that it owed $9.9 million in punitive damages under a lawsuit filed against it and its chief executive officer.

Following that announcement, S&P lowered the rating on the company's credit facility to B+ from BB-.

It was not too long after the litigation and rating news emerged that the deal's difficulties getting done became evident as the flex up in pricing was announced and sources revealed that although a new commitment deadline had been set, the books were likely to remain open past that date in an attempt to fill them out.

Pre-Paid Legal Services is an Ada, Okla., developer and marketer of legal service plans.

Energy sector rises

The energy sector seemed to have caught a bid on Wednesday, with names like El Paso Corp. and Allegheny Energy Inc. gaining about a quarter of a point on the day, according to a trader.

El Paso's term loan closed out the session at par ¾ bid, 101 offered, up from par ½ bid, par ¾ offered, and Allegheny's term loan closed out the session at 101 bid, 101½ offered, up from being wrapped around 101, the trader said.

"The new issue calendar has dried up a little. There's still cash out there though. People have more time to focus on the secondary. Good market tone today. Good flow for this time of year," the trader added, explaining that it seems as if the energy names just reaped the rewards of an overall better feeling secondary market.

El Paso is a Houston-based natural gas company and Allegheny is a Greensburg, Pa.-based utility holding company.

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