Del Monte's proposed amendment has some seeing red over non-payment of call protection

By Sara Rosenberg

New York, Aug. 6 - Del Monte Foods Co. went out to lenders on Wednesday with a proposed amendment would allow the company to avoid paying the 102 call protection under its credit agreement by essentially changing the prepayment of its term loan B into a mandatory rather than voluntary payment.

The company wants to amend its credit agreement to change the definition of "other debt" to include senior secured debt. By doing this, Del Monte can issue a new term loan C, which, under the new definition, would have to be used to repay existing bank debt. Once this repayment is a mandatory one, investors are no longer entitled to the previously agreed upon call protection, according to a fund manager.

The new term loan C would go out at Libor plus 250 basis points, compared to the Libor plus 375 basis points pricing on the existing institutional tranche.

In return, the company is offering to pay investors 75 basis points for signing the amendment.

Bank of America is the agent on the deal with Morgan Stanley replacing JPMorgan as co-agent. This replacement an agent bank is a result of JPMorgan "apparently being opposed to getting away without paying the call protection," the fund manager speculated.

However, according to JPMorgan, "B of A is admin agent and they're allowed to ask whoever they want and they asked Morgan Stanley. We were a part of the deal last year. This is strictly an amendment and partial refi."

Calls to Bank of America and Morgan Stanley were not returned by press time.

The proposal has some lenders upset, feeling that the amendment is more of an ethical battle rather than a company trying to take advantage of strong market technicals.

"Our view is that we'd like to resist this strongly. Our priority is to get the 102. We want no part of it," the fund manager admitted. "To me this is a matter of ethics not pricing. A lot of repricings have been a function of market technicals. This is both a company and an investment bank trying to get out of their contractual obligations."

In order to change the definition, the company only needs 51% approval from lenders.

"The pro rata is smaller than the institutional tranche. I don't know how much the agents own. My sense is that they must have the vote otherwise they're being self-destructive by bringing this to market," the fund manager said. "But then again, the market has been taking baby steps backwards over the last two or three weeks. So they may have been talking about this two or three months ago and it just came at a slightly technically weaker time."

There will be a conference call on Tuesday with agents, the company and lenders to discuss the proposal further.

Originally, the company wasn't expected to approach lenders regarding the amendment until Friday but "market rumor was going so they had to launch it today," the fund manager said.

As was previously reported by Prospect News, rumors on this proposal were floating around the marketplace since July, sparked by reports that Bank of America was restricted on Del Monte, meaning it could not trade the bank debt. At that time people were unsure as to how the company would try to go about avoiding the call protection but the basic idea that it would not be paid was the cause of much speculation.

As rumors began to spread some began feeling frustrated by what they were hearing, with one market professional citing call protection as a main reason why people invested in the deal when it first launched in December 2002.

The San Francisco processed food company's $1.245 billion bank loan consisted of a $300 million six-year revolver with an interest rate of Libor plus 350 basis points, a $195 million six-year term loan A with an interest rate of Libor plus 350 basis points, an approximately €45 million eight-year term loan B with an interest rate of Libor plus 375 basis points and a $705 million eight-year term loan B with an interest rate of Libor plus 375 basis points.

In other news, UniFirst Corp.'s proposed $285 million three-year revolving credit facility priced with an interest rate of Libor plus 200 basis points has received some preliminary interest with two banks committing to the deal prior to Wednesday morning's bank meeting, a source close to the deal told Prospect News.

SunTrust committed to the deal as a syndication agent and a second bank, which chose to remain unnamed at this stage, made a meaningful commitment to the deal but has opted not to sign on as a title agent.

Obviously, since Fleet is leading the facility and is sole bookrunner and administrative agent, the bank has also committed to the deal in a "meaningful level", the source said.

In addition to the early interest, the launch of the loan was also reported to have gone relatively well. "The bank meeting was very well attended," the source said. "It's an acquisition-related facility so over 75% will be funded. It's a well regarded company. And, it's good pricing."

Last month, the company announced plans to acquire Textilease, a privately held Maryland corporation with operations concentrated primarily in uniform services and first-aid/medical services. Textilease had fiscal year 2002 revenues of $95 million. The acquisition is expected to be completed in September.

UniFirst is a Wilmington, Mass. provider of workplace uniforms and protective clothing.

In the secondary, EaglePicher Inc.'s new $275 million credit facility (B2/B+) broke for trading, with the institutional tranche ending the day at par ½ bid, par ¾ offered and trading as high as par 5/8 during market hours, according to a trader.

The $150 million six-year term loan B was originally sold at par and was priced with an interest rate of Libor plus 350 basis points after reverse flexing by 50 basis points during the syndication process.

The company's facility also contains a $125 million five-year revolver with an interest rate of Libor plus 350 basis points.

ABN Amro and UBS are the lead banks on the refinancing deal.

EaglePicher is a Phoenix manufacturer and marketer of products for space, defense, automotive, filtration, pharmaceutical, environmental and commercial applications.

National Waterworks Inc.'s repriced $250 million term loan B started trading on Wednesday and closed the day at par 3/8 bid, par 7/8 offered, according to a trader.

People basically rolled over their existing commitments into the newly priced tranche so it's not really viewed as a new deal, the source said. The facility was technically sold at par.

Pricing on the B loan is now set at Libor plus 275 basis points. The 2.5% Libor floor was that previously included in the credit agreement was removed.

JPMorgan and Goldman led the deal for the Palm Desert, Calif. provider of water and wastewater systems.

Moran Transportation's $175 million senior secured credit facility also broke for trading with the institutional tranche quoted at par ½ bid, par ¾ offered at the end of the day, according to a trader.

The $125 million six-year B loan is priced at Libor plus 325 basis points.

The facility also contains a $50 million five-year revolver with an interest rate of Libor plus 250 basis points.

Fleet is the sole lead arranger and Bank of America is syndication agent on the deal, which is being used to refinance existing bank debt.

Charter Communications Inc.'s term loan B was quoted about a point lower at 92¾ bid, 93¾ offered, according to a trader. Asked what caused the drop, the trader speculated: "The bond deal must not be getting positive feedback."

Charter is currently on the road with a $1.7 billion senior notes offering due 2013 (CCC-), split between $850 million at Charter Communications Capital Corp. I LLC and $850 million at Charter Communications Capital Corp. II LLC.

The St. Louis-based cable operator's roadshow started this past Tuesday and will go on until Aug. 13.

Calpine Corp.'s second-lien bank debt rebounded to previous levels after opening lower following the release of second quarter financial results. The rebound to 89½ bid, 90½ offered was attributed to a positive conference call.

On Wednesday, the San Jose, Calif. energy company announced financial results for the second quarter that included a $0.06 loss per share, or a $23.4 million net loss, compared with $0.18 earnings per share, or $68.3 million net income for the second quarter of 2002.

For the six months ended June 30, the company reported a $0.20 loss per share, or a $75.4 million net loss, compared with a $0.02 loss per share, or a $7.4 million net loss for the six months ended June 30, 2002.

"At the beginning of the year, Calpine put in place an aggressive program to enhance liquidity, refinance current maturities and begin to reduce outstanding debt," Peter Cartwright, president and chief executive officer, said in a news release. "Since the beginning of the year, Calpine has completed or announced more than $1.6 billion of liquidity-enhancing transactions, raised $3.8 billion to refinance and repay debt, and grown our operating and contractual power portfolios.

"While electricity prices may remain low through 2004, we are beginning to see a positive shift in the market," Cartwright continued. "We are encouraged by an increased demand for long-term contracts to hedge volatility and by the continuing need to modernize North America's aging power infrastructure with new, clean, reliable sources of generation."

Meanwhile, there was a lot of market talk surrounding Calpine Construction Finance Co. LP's proposed $750 million offering, with unconfirmed rumors ranging from the cancellation of the second-lien piece to sizes of the two tranches being flip-flopped to no specific tranche sizes being set at this point.

Late in the day, a syndicate source told Prospect News the deal is expected to price Thursday. The structure is the same as previously except that the first priority loan is now sized at $300 to $350 million instead of $300 million.

The offering consists of a $300 million to $350 million six-year first priority secured term loan talked at Libor plus 500 to 550 basis points and a $450 million eight-year second priority secured floating-rate notes under Rule 144A talked at Libor plus 800 to 850 basis points, the source said. The notes are expected to price off the bank loan desk. Goldman Sachs is the lead bank on the deal.

Allegheny Energy Inc.'s second-lien loan was also quoted lower on Wednesday, with one trader putting it at 94½ bid, 95½ offered, a second trader seeing it trade "down significantly" at 93¾ and a third trader quoting it at day's end with a 93¾ bid. Previously, the bank paper was quoted at 95 bid, 96 offered.

The Hagerstown, Md. utility holding company's bank debt and the energy sector as a whole was said to be lower in response to Calpine's earnings news. The energy names then bounced back with Calpine, a trader explained.

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