Allison Transmission $1 billion term loan prices at 96.00 with downside protection; LCDX up ¼

By Paul A. Harris

St. Louis, Sept. 12 - The LCDX traded ¼ point higher during Wednesday's session in the leveraged loan market, with a trader spotting the index at 95¼ bid at the close.

The trader also said that the cash market felt better but saw no specific names on the move.

The news which dominated the market was Allison Transmission.

Sources told Prospect News that approximately $1 billion of the term loan was priced at 96.00 with 60 days of downside trading protection.

Although it represents a mere fraction of the $300 billion-plus risk overhang on the balance sheets of the underwriters, sources told Prospect News that the pricing of that $1 billion represents a significant event in the syndicated loan market.

Allison at 96

Underwriters priced approximately $1 billion of the hung bridge loan backing the LBO of Allison Transmission at 96.00, according to market sources.

The sale leaves approximately $2 billion of the postponed $3.1 billion term loan on the underwriters' balance sheets.

In return for participating at that price investors were granted 60 days of downside trading price protection.

One source said that the call protection kicks in only if the underwriters sell some or all of the remainder of the loan.

In late July Allison Transmission postponed its $3.5 billion credit facility (B1/BB-) and a $1.1 billion two-part senior notes offering (Caa1) due to poor market conditions.

Citigroup, Lehman Brothers and Merrill Lynch were leading the financing.

Sources said that nine investors participated in the deal.

An investor said that hedge funds, real money accounts and a few banks participated.

One leveraged loan syndicate official sad that the 96.00 original issue discount "isn't bad.

"It works out right around Libor plus 400," the source added, noting that the deal came to market at a 275 basis points spread to Libor.

Measuring the impact

As news of the Allison deal circulated through the market, sources offered mixed reviews, some seeing the glass half full while others dwelt upon the half empty glass.

"The big deal is that $1 billion was raised, which is a lot these days," a banker said.

"There have been a number of deals out there for $200 million to $400 million that have gotten done, but this is $1 billion, and that's not bad.

"It would be overstating things to say 'Hey, deals can get done,' because $2.5 billion didn't get done," the source added.

This source noted that high yield mutual funds had seen inflows over the past two weeks, and added that some of that cash likely flowed into Allison.

Later in the day sources told Prospect News that the entire term loan could have been placed had the underwriters elected to offer a greater discount.

Another banker said that although the $1 billion Allison deal represents a small fraction of the $300 billion-plus of risk overhang resulting from unsyndicated loans and unplaced junk bonds, the pricing of the debt at 96.00 is a positive development.

"It may indicate that there is some stability because in late July and in August that's where deals were getting done - in the mid-90s.

Yet another source from an investment bank, conceding that the Allison $1 billion is only a fraction of the overhang, said that underwriters will be addressing that $300 billion plus of risk overhang "deal by deal," and added that presently the market seems to generally be Libor plus 400 basis points for first-lien tranches, and 750 to 800 basis points for second-liens, in some combination of OID and spread.

Week to end quietly

Elsewhere, Wednesday, the market was quiet as sources looked ahead to the Rosh Hashanah holidays on Thursday and Friday, during which time the market is expected to remain on the quiet side.

Wednesday saw a trickle of new deal information.

BreitBurn Energy Partners LP announced that it has secured an underwriting commitment from Wells Fargo and Credit Suisse for a $1.5 billion amended and restated credit facility.

The initial borrowing base of the credit facility is expected to be $700 million.

The bank deal is part of the financing for the Los Angeles-based independent oil and gas limited partnership's acquisition of natural gas, oil and midstream assets from Quicksilver Resources Inc., for $750 million and 21.348 million BreitBurn common units.

And General Cable Corp. received commitments for an up to $400 million revolver and an up to $300 million second-lien secured interim loan.

Merrill Lynch will be the agent.

Proceeds, along with available cash, will be used to fund the acquisition of Freeport-McMoRan Copper & Gold Inc.'s wire and cable business, which operates as Phelps Dodge International Corp.

The $735 million acquisition is expected to close in the fourth quarter.

© 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.