Reddy Ice term loan plummets; Abitibi offers $1.4 billion restructuring plan; LCDX gains ½ point

By Paul A. Harris

St. Louis, March 7 - News of a Wednesday raid by the U.S. Justice Dept.'s Antitrust Division on the office of Dallas-based Reddy Ice Holdings, Inc., had a chilling effect on the company's term loan., traders said.

One trader said that the loan was trading in the context of 85 bid, 90 offered in the morning, and by mid-afternoon it was 84 bid, 89 offered, altogether down 6 points on an otherwise quiet day in the secondary market.

In a press release Reddy Ice stated that the Feds' search warrant came in connection with an investigation of the packaged ice industry.

The news release added that the company's board of directors has formed a special committee to conduct an internal investigation.

Overall bank loan traders reported that the Friday session was extremely quiet.

One trader said that the cash market was down ½ point in the morning.

Meanwhile a trader who focuses on distressed bank debt reported seeing nothing moving.

This source marked the LCDX 9 index up ½ point on the day, going out at 91.30 bid, 91.40 offered.

Several sources made mention of an $8 million inflow to bank loan funds for the week that ended Wednesday, noting it was the first positive flow in the past 22 weeks.

Abitibi restructuring

AbitibiBowater Inc. announced a $1.4 billion refinancing plan on Friday.

It includes new bank and bond debt, and addresses the upcoming maturities and general liquidity needs of the company's Abitibi-Consolidated Inc. subsidiary, the Montreal-based producer of paper, pulp and wood products said.

The refinancing includes approximately $400 million of senior secured notes or term loan due 2011, secured by fixed assets, and a $400 million to $500 million 364-day senior secured term loan, secured by working capital and other assets.

The bank meeting for the 364-day loan is scheduled to take place in New York City during the week of March 10.

The plan also includes $200 million to $300 million of new equity or equity-linked securities to be issued by AbitibiBowater Inc.

In addition the refinancing includes $200 million to $300 million of senior unsecured exchange notes due 2010 which are part of a $500 million exchange offer for near-term maturity notes.

Goldman Sachs & Co. is leading the exchange offer according to market sources.

Buying time

A money manager who focuses on bank loans and junk bonds said that Abitibi's news release had "everybody sort of knitting their eyebrows.

"The market reaction was to trade the short-term debt up quickly," the source said, adding that the debt subsequently "started to fade fairly quickly."

The investor said that the buy-side harbors a belief that the refinancing deal requires an equity component in order to work.

"The question is, 'Who has the desire to put equity into the company?'" the source continued.

"Possibly it's the people with positions bought cheaply on the bond side. They might have an incentive; at least they get a pop on their bonds."

The money manager said that the restructuring unveiled on Friday, if it works, gets Abitibi past a couple of bond refinancings, and buys time for the company.

"It's about the best that anybody can hope for," the money manager said.

"Abitibi is a good company with a bad balance sheet. They've been hit by a lot of stuff, including the strong Canadian currency and the decline in newsprint.

"And there is so much debt.

"But if you get off a big exchange offer, and get a little bit more equity, and get a little bit of liquidity from the banks then you have a shot."

With reference to the 364-day term loan, the money manager said: "I'm a little surprised that they're going to get a one-year deal out of the banks.

"People are speculating that it must be Canadian banks because they have political reasons to do it."

The right direction

This source and others mentioned that the $8 million inflow to bank loan funds for the week to March 5, as reported by AMG Data Services - the first positive flow in 22 weeks - is, if nothing else, a move in the right direction.

"The whole world is beating the drum about bank loans being cheap, and an easy way to make money over the next few years," the money manager said.

"At some point even retail investors had to pay attention to that, and put money back into primary funds."

Parsing FairPoint

The money manager mentioned that because of its $2 billion size, the FairPoint Communications deal, now it the market, is commanding a good share of attention.

"With a calendar at $13 billion, theoretically, there is just not much out there," the source commented.

The FairPoint institutional tranche is a $1.13 billion term loan talked at Libor plus 275 basis points, offered at an original issue discount of 93.00.

"It's not screamingly cheap," the money manager said, adding that there could be some pushback from bank loan investors on that original issue discount.

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