Georgia Gulf breaks; CSC weakens on non-compliance, ratings reviews; Valassis deal fate uncertain

By Sara Rosenberg

New York, Aug. 30 - On the trading front Wednesday, Georgia Gulf Corp.'s credit facility hit the secondary with the term loan quoted atop par, and CSC Holdings Inc.'s term loan B softened up a touch on non-compliance news and reviews for downgrades from the rating agencies.

In the primary, Valassis Communications Inc.'s proposed credit facility could end up getting pulled as the acquisition of Advo Inc., which was the purpose behind the financing, is now being fought over in court.

Georgia Gulf's credit facility broke for trading during market hours, with the $750 million term loan quoted at par ¼ bid, par ¾ offered, according to a trader.

The term loan is priced with an interest rate of Libor plus 200 basis points, in line with original talk at launch.

Georgia Gulf's $1.05 billion credit facility (Ba2/BB/BB+) also contains a $300 million revolver with an interest rate of Libor plus 200 basis points.

Bank of America, Merrill Lynch and Lehman Brothers are the lead banks on the deal, with Bank of America on the left.

Proceeds from the credit facility, along with proposed offerings of $500 million of senior unsecured notes and $250 million of senior subordinated notes that have yet to come to market, will be used to fund the acquisition of Royal Group Technologies Ltd.

Under the acquisition agreement, Georgia Gulf will pay C$13.00 per Royal Group share in cash. The total transaction is valued at about C$1.7 billion, including assumed net debt of about C$491 million.

Closing on the transaction is expected around the September timeframe, subject to approval by Royal Group's shareholders and regulatory approvals.

Georgia Gulf is an Atlanta-based manufacturer of commodity chemicals, vinyl resins and vinyl compounds. Royal Group is a Toronto-based producer of vinyl building and construction products.

CSC Holdings dips in trading

CSC Holdings' term loan B was a touch weaker Wednesday as investors reacted to the company's covenant non-compliance announcement and rating agency reviews, according to a trader.

The term loan B closed the day at 99¼ bid, 99¾ offered, down about an eighth of a point when compared to previous levels, the trader said.

Late in the day Tuesday, CSC revealed in an 8-K filed with the Securities and Exchange Commission that it missed its Tuesday financial delivery deadline for the periods ended June 30, 2005 and 2006 due to necessary restatement of previously issued financial statements.

Lenders under the facility, other than term loan B lenders, agreed to waive the covenant non-compliance until Sept. 22, so notice of default could not be given until Sept. 25 at the earliest and CSC would have 30 days from the date of any such notice to cure the default.

Term loan B lenders, though, have yet to supply the company with a waiver.

If the agent bank or lenders holding at least 25% of the term B loans give a notice of default, CSC will have 60 days from the date of such notice to cure its non-compliance.

In reaction to this news, Moody's Investors Service placed CSC's Ba3 credit facility rating on review for possible downgrade and downgraded the speculative grade liquidity rating of Cablevision Systems Corp. to SGL-4 from SGL-2.

"While in management's view, it is highly unlikely that the company will not file by October 25; failure would give its lenders the right to accelerate loans and permit bondholders to cross accelerate. Should the company file its statements within the cure period, Moody's is likely to confirm ratings and return to a stable outlook," the rating agency said.

Meanwhile, Standard & Poor's announced that as a result of the non-compliance it would be leaving CSC's ratings on CreditWatch negative, where they were placed on Aug. 8.

"We note that debt at both CSC Holdings and parent Cablevision Systems have cross-acceleration provisions that could be problematic if there is a protracted delay in the filing of the financial statements," said S&P credit analyst Catherine Cosentino in the ratings release.

S&P went on to say that it will closely monitor Cablevision's progress over the next few weeks in filing its second-quarter 10-Q. If it is determined that the company is not likely to meet either the Oct. 25 initial cutoff under the term loan A and revolver, or the Oct. 30 initial cutoff under the term loan B, and additional waiver have not been obtained, ratings would be lowered significantly.

CSC is a subsidiary of Cablevision Systems Corp., a Bethpage, N.Y., media, entertainment and telecommunications company.

Valassis buy of Advo in doubt

Valassis' acquisition of Advo may not come to fruition as Valassis is trying to rescind its $1.3 billion purchase agreement by alleging misrepresentation and material adverse changes, according to a company news release.

And, if the acquisition falls through, Valassis' proposed credit facility will likely disappear.

In a suit filed in the Delaware Chancery Court, Valassis claimed that Advo intentionally provided "materially false financial information" and "withheld material information" at a time when the operating income was materially off forecast.

The complaint also alleged that Advo executives knew of, but did not disclose, significant internal control deficiencies associated with Advo's enterprise-wide order-to-cash system.

"We believe that taking this action is in the best interest of our shareholders," said Alan F. Schultz, Valassis chairman, president and chief executive officer, in the release. "Advo left us with no choice. The pertinent information we received was erroneous, projections were grossly inaccurate and we believe we were the victims of fraud."

Advo responded to Valassis' lawsuit in a press release by saying: "Advo rejects Valassis' claim that it has any basis to back out of the deal. While Advo has not yet had time to fully review the lawsuit filed by Valassis, Advo believes it is baseless and without merit. Advo can only surmise that Valassis' action is merely a smokescreen to hide the fact that Valassis is suffering from an extreme case of buyer's remorse.

"Advo remains committed to the transactions contemplated by the binding merger agreement, and will take action to enforce that agreement and vigorously defend itself against Valassis' claims."

To fund the acquisition, Valassis was planning on coming to market in September with a $1.375 billion secured credit facility consisting of a $200 million six-year revolver and $1.175 billion seven-year term loan B.

Bear Stearns had agreed to be the lead bank on the credit facility.

No definitive word on the fate of the acquisition and the credit facility is available at this time, a market source added.

Valassis is a Livonia, Mich., marketing services company. Advo is a Windsor, Conn., direct mail media company.

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