Bid, asks widen as buyers try to capitalize on high-yield market weakness

By Sara Rosenberg

New York, May 17 - Trading activity in the secondary bank loan market slowed on Monday as buyers are starting to look for bargains on high-yield and equity weakness and sellers are refusing to believe that the market is backing off as much as buyers would like them to believe.

"Overall it's quiet. [It is] looking for direction," a trader said. "When the equity market backed off people got spooked and the high-yield market had no direction today."

"It's been quiet. It's a Monday., followed by high yield being off, followed by equities being off still," a second trader said. "I think the [bond] deals being pulled last week made people take a step back. The market's been off but it hasn't really been down. We're seeing bid, asks widen. Bids dropped but the offers have maintained their levels. Sellers think it might just be some short-term volatility, so they're unwilling to come down just yet and hit the low bids. That being said, the market feels choppy."

Between Thursday and Friday alone, five bond deals were pulled, with all the companies citing market conditions as the impetus. The deals included New York cosmetics maker Revlon Inc.'s planned $400 million of senior notes (and $680 million credit facility), Swedish shipping firm Stena AB's offering of $250 million of 20-year senior notes, Mülheim an der Ruhr, Germany-based distributor of specialty and industrial chemicals Brenntag Finance GmbH's €190 million offering of 10-year senior notes, Denver-based luggage maker Samsonite Corp.'s $325 million offering of senior notes and senior subordinated notes, and London-based steel company Corus Group plc's €500 million offering of 10-year senior notes.

And, although not officially pulled, Lake Forest, Ill., auto parts maker Tenneco Automotive said that it was not certain whether it would go ahead with a planned offering of $420 million of new senior subordinated notes.

New paper to hit Tuesday

In comparison to Monday's quiet market, activity in Tuesday's secondary market is expected to pick up as lots of new paper is anticipated to start trading, including Tower Automotive Inc., Getty Petroleum Marketing Inc. and Juno Lighting Inc.

Tower Automotive is expected to give out allocations on its $565 million credit facility on Tuesday concurrently with the broadcast of final terms and allocations on the $110 million convertible offering, according to a market source.

The books on Tower's credit facility closed last Thursday with $1.7 billion raised, clearly bringing this deal into the "blowout" category, another source said.

The fact that the deal went so well is really no surprise being that the second lien term loan was already significantly oversubscribed prior to the May 6 bank meeting that officially launched the credit facility to retail investors and the first lien was once covered prior to the meeting as well.

Previously the company only tapped commercial lenders for its credit facilities. This time around, however, it opted to approach institutional investors, which was obviously a good choice based on the amount of support that the deal has received.

In fact, demand was so strong for the $140 million 51/2-year second lien synthetic letter-of-credit facility (B2/B-) that the syndicate was able to reverse flex pricing to Libor plus 700 basis points from Libor plus 750 basis points during syndication.

The $375 million five-year first lien term loan B (B1/B+) is priced with an interest rate of Libor plus 425 basis points, unchanged since launch.

Tower Automotive's credit facility also contains a $50 million five-year revolver (B1/B+) with an interest rate of Libor plus 425 basis points.

Morgan Stanley and JPMorgan are the lead banks on the deal, with Morgan Stanley listed on the left.

Leverage through the first lien is 1.8x, and leverage through the first and second lien is 2.3x.

Proceeds, combined with proceeds from a proposed $110 million principal amount of convertible senior debentures offering, will be used to refinance the existing credit facility eliminating near-term amortization pressure and refinance the 5% convertible subordinated notes due Aug. 1.

Tower Automotive is a Novi, Mich., designer and producer of structural components and assemblies used by automotive original equipment manufacturers.

Getty to hit secondary

Getty Petroleum's upsized $360 million credit facility (B1) is expected to allocate and break on Tuesday, according to a trader. The deal was restructured this past Friday to increase the four-year revolver to $90 million from $75 million and add a pricing grid to the $270 million six-year term loan.

The revolver is priced with an interest rate of Libor plus 250 basis points.

The term loan remained priced at Libor plus 325 basis points, but, after six months pricing can step down to Libor plus 300 basis points if leverage gets below 3x, according to a fund manager.

Lehman Brothers is the sole lead arranger and administrative agent on the deal.

Security for the term loan is a first lien on fixed assets and a second lien on accounts receivables and inventory. Security for the revolver is second lien on fixed assets and a first lien on accounts receivables and inventory.

Proceeds will be used to purchase Mobil branded gasoline retail stations and contracts to supply gasoline to Mobil branded stations located in New Jersey and Pennsylvania from ConocoPhillips.

Getty Petroleum is an East Meadow, N.Y., distributor of motor and heating fuels.

Juno to allocate

Juno Lighting Inc.'s $245 million credit facility is also expected to allocate and hit the secondary on Tuesday, according to a different trader.

The facility consists of a $165 million first lien term loan (B1/B+), increased during syndication from $150 million, with an interest rate of Libor plus 275 basis points, reverse flexed from Libor plus 300 basis points since launch, a $50 million second lien term loan (B2/B-), decreased from an original size of $60 million, with an interest rate of Libor plus 550 basis points, reverse flexed from Libor plus 575 basis points during syndication, and a $30 million revolver (B1/B+), left unchanged since launch, with an interest rate of Libor plus 300 basis points with stepdowns depending on leverage.

The first lien term loan also contains a stepdown to Libor plus 250 basis points added if leverage falls below 4x.

The second lien term loan has call protection of 102 in year one and 101 in year two.

Leverage is 3.2 times through the first lien and 4.5 times through the second lien. Interest coverage is just over four times. Furthermore, the company generates $25 to $30 million of free cash flow per year that could be used for debt reduction.

Proceeds would be used to retire $160 million of long-term debt and pay a $50 to $60 million dividend to its preferred and common stockholders.

Wachovia is the lead bank on the deal.

Juno is a Des Plaines, Ill., lighting fixtures manufacturer.

Autocam pricing

Pricing on Autocam Corp.'s credit facility was revealed on Monday with all three tranches priced at Libor plus 300 basis points as the deal held its U.S. bank meeting to launch the facility to retail investors, according to a market source.

More specifically, the facility consists of a $50 million revolver, a $50 million term loan and a €75 million term loan.

Upfront fees on the revolver and the euro term loan are 1% for a $25 million commitment and 75 basis points for a $15 million commitment, the source added.

Goldman Sachs and Citigroup are the lead banks on the deal.

Proceeds will be used to fund the acquisition of Autocam Corp. by a consortium of investors led by Goldman Sachs Capital Partners LP, Transportation Resource Partners and Autocam senior management from Aurora Capital Group for $390 million, including assumed debt.

Also on Monday, the company launched a roadshow for its $140 million of 10-year senior subordinated notes that will be used to help fund the LBO as well. Pricing on the bonds is expected mid-to-late in the week of May 24.

The acquisition is expected to close in June, following customary regulatory approvals. Autocam was advised by Citigroup Global Markets Inc. and Gibson, Dunn & Crutcher LLP.

Autocam is a Kentwood, Mich., designer and manufacturer of specialty metal alloy components for the transportation and medical device industries.

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