Market moves ahead ¼ point; investors pushing on SunGard deal; Northwest regains ground

By Paul A. Harris and Sara Rosenberg

New York, July 8 - The leveraged loan market continued better bid on Friday, sources said.

Meanwhile investors were rumored to be pushing - and possibly gaining ground - on the massive SunGard Data Systems, Inc. loan.

Elsewhere Northwest Airlines Corp.'s bank debt flew back into pre-London news territory early in the session as the initial shock of the disturbing events wore off.

And in the primary, some investors are looking for a couple of additional structural changes to the BI-LO LLC credit facility as last week's informal round of changes fell slightly short of covering all the bases.

A lot of offers

Shortly after Friday's session came to a close one trader said "The whole market was better bid.

"Pretty much every on-the-run name was up about a quarter, with retail buyers and CLOs coming in with a lot of offers.

"It stared yesterday [Thursday] and picked up steam today."

Among the names this trader saw advancing were Fidelity National Information Services Inc., General Growth Properties, Inc. and MGM Studios.

SunGard with an eighth up front

Sources also said late Friday that SunGard Data Systems, Inc.'s mammoth $4 billion 7.5-year term loan is expected to come with an eighth of a point up front.

The JP Morgan and Citigroup-led credit facility (B1/B+), which also includes a $1 billion revolver, was launched Thursday at Libor plus 250 to 275 basis points, however an investor told Prospect News that talk is rumored to be headed toward a 300 basis points spread to Libor.

"It's a solid story," the investor said. "Management presents well. The bank loan is going to do pretty well, even though it's the biggest bank loan in the world."

A trader who spoke to Prospect News shortly thereafter also reported hearing the rumor of an increase in the coupon.

"But it is a rumor," the trader insisted. "The accounts tend to like to write the book on these things."

SunGard's $11.3 billion overall LBO financing also includes a $3 billion bridge loan to high yield issuance.

Almost immediately after the Independence Day break rumors started flying that the bond deal would happen in July, either in whole or in pieces.

The bank loan investor expressed the belief that the junk financing would indeed materialize during the present month.

"At the roadshow they said that they were going to bring it this month, although our high yield trader said that next week is expected to be relatively quiet," the source said.

Some people are thinking that they might bring something smaller than $3 billion.

"But I think it makes sense to do the high-yield deal, either the whole thing or in bits. And July is the right month to do it. August gets a little funky."

Even if it does come at $3 billion, buy-side sources are saying that the present junk bond market can digest it.

"If they have to push the bank loan out to 300 they're also going to have to push the bonds out," said the investor. "It might generate a little bit of competition.

"But given that it's a decent company with a decent spread on it I think they can get the high yield done."

During the conversation with the investor, Prospect News also brought up Standard & Poor's mid-year high-yield report, released Thursday.

In it S&P asserted that volatility has driven some issuers away from high yield and into the leveraged loan market. Both markets have benefited in recent years from abundant liquidity and declining defaults, S&P noted. However contrary to the high-yield market, pricing in the leveraged loan market still remains compelling, with spreads highly compressed across all major rating categories, while the search for increased returns has prompted lower risk aversion among leveraged loan investors, S&P said.

The leveraged loan investor insisted that S&P's take is right on.

"A greater and greater percentage of capital structures are being pushed into the loan market, making banks do something that they did not formerly do, which is making up over 50% of the capital structure," the investor commented.

"I can't believe that is going to last very long."

Wind beneath Northwest's wings

Northwest Airlines' bank debt was seen quoted higher by about half a point across the board by mid-day Friday - essentially recouping all losses that were seen in the name Thursday after news of bombings in London's subways and a bombing on a London bus hit the airwaves, according to a fund manager.

The term loan A was quoted at 94 bid, 95 offered, the term loan B was quoted at 97 bid, 98 offered and the term loan C was quoted at 95 bid, 96 offered, the fund manager said.

The bank debt had shifted about half a point lower on Thursday as investors were concerned over a near-term decline in transatlantic airline travel that could potentially result from the London attacks.

However, in the wake of the London news, Standard and Poor's put out a report saying that the apparent terrorist attacks will likely hurt the transatlantic business of some airlines but, barring further incidents, they are not expected to affect the ratings or outlooks of those companies.

Northwest is an Eagan, Minn.-based airline company.

BI-LO structure could need work

BI-LO's credit facility is expected by some to need a second round of modifications - this time focusing more on structural issues, rather than pricing and amortization, and possibly a sweetening of the recently informally added call protection provisions, according to a buy-side source.

"I'd like to see some further changes to the call protection and to the excess cash flow sweep," the buy-side source said about the term loan B agreement. "I'd like to see 103, 102, 101 hard call protection and a 75% excess cash flow sweep rather than the 50% that they are pitching to us."

Last week, the syndicate went out to all potential lenders with a number of changes to the deal (although the tweaks were never posted to Intralinks), including the addition of soft call protection of 102 in year one and 101 in year two to the term loan B tranche.

At that time, the syndicate also upped pricing on the $345 million six-year term loan B to Libor plus 400 basis points from Libor plus 325 basis points - which, according to the buy-side source, "is fine" and probably won't need any more tweaking.

Lastly, the syndicate changed the amortization schedule on the term loan B, increasing it to $5 million in 2005, $15 million in 2006, $20 million in 2007 and 2008, $25 million in 2009, $30 million in 2010 and $230 million in 2011. Amortization was originally planned to be 1% of the term loan per year for the first five years and the balance due in equal quarterly installments during the sixth year.

BI-LO's $420 million credit facility (B1/B) also contains a $75 million five-year revolver.

Bear Stearns is the lead bank on the deal that will be used to refinance some acquisition loans that were put in place by the sponsors.

With this new deal, bank leverage will be less than 2x and total debt will be in the mid-3x area.

BI-LO is a Greenville, S.C., supermarket operator that was bought by Lone Star Funds early this year from Royal Ahold.

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