Royalty Pharma, Stackpole break; Nursing home sector retreats as Medicare cuts payments

By Sara Rosenberg

New York, Aug. 1 - Royalty Pharma set tranche sizes on its credit facility, and then the deal proceeded to make its way into the secondary market, with the institutional term loans quoted above their original issue discount prices, and Stackpole International started trading as well.

Also in the secondary, companies in the nursing home sector, such as Golden Living, Kindred Healthcare Inc., HCR ManorCare and Sun Healthcare Group Inc., came under pressure with news of reduced payments from Medicare.

Additionally, Paetec Holding Corp.'s term loan B was a little stronger on Monday after the company announced that it is being acquired by Windstream Corp., while Windstream's term loan debt was pretty much unchanged.

In more loan happenings, Inmar Inc. flexed pricing higher on its term loan B, while leaving all other terms unchanged, and Lion Copolymer LLC removed its credit facility from market as pricing had drifted higher than desired by the issuer.

Furthermore, chatter is that Smart Modular Technologies Inc. is having a hard time find a clearing price for its term loan.

Royalty Pharma sets sizes

Royalty Pharma firmed the 51/4-year term loan at RPI Finance Trust at $850 million and the 63/4-year term loan at RPI Finance Trust at $1.9 billion versus initial talk of $1.375 billion each, according to a market source.

Pricing on the tranches was left in line with prior guidance, with the 51/4-year loan priced at Libor plus 275 basis points with a 1% Libor floor and sold at an original issue discount of 993/4, and the 63/4-year loan priced at Libor plus 300 bps with a 1% Libor floor and sold at an original issue discount of 991/2.

Both term loans still include 101 soft call protection for one year.

The company's $3.6 billion credit facility (Baa2/BBB-) also includes an $850 million five-year term loan at RPI Select Finance Trust priced at Libor plus 225 bps with no Libor floor that was marketed to banks.

Royalty Pharma frees up

After details on structure were finalized, Royalty Pharma's credit facility broke for trading, with 51/4-year term loan and the 63/4-year term loan quoted at 99¾ bid, par ¼ offered on the open and through the remainder of the day, according to a trader.

Bank of America Merrill Lynch, Goldman Sachs & Co. and Citigroup Global Markets Inc. are the lead banks on the deal that will be used by the newly formed borrowing entities to refinance existing debt, fund a distribution and put cash on the balance sheet.

Royalty Pharma is a New York-based acquirer of royalty interests in marketed and late-stage biopharmaceutical products.

Stackpole hits secondary

Also freeing up was Stackpole's credit facility, with its $140 million six-year term loan quoted at 98¼ bid, 99¼ offered, according to a trader.

Pricing on the term loan is Libor plus 600 bps with a 1.5% Libor floor, and it was sold at an original issue discount of 98. There is 101 soft call protection for one year.

During syndication, pricing was increased from talk of Libor plus 475 bps to 500 bps, the discount widened from 99 and the call protection was added.

RBC Capital Markets LLC, BNP Paribas Securities Corp. and UBS Securities LLC are the joint bookrunners on the $165 million senior secured deal, which also includes a $25 million five-year revolver.

Stackpole being acquired

Proceeds from Stackpole's credit facility will be used to help fund the buyout of the company by the Sterling Group.

Other funds for the transaction will come from a $45 million seven-year subordinated mezzanine facility.

Pro forma senior leverage is 2.8 times and total leverage is 3.7 times.

Stackpole is a supplier of highly engineered engine and transmission oil pumps and powdered metal components to automotive and original equipment manufacturers.

Nursing home names slide

Nursing facility-related names suffered during Monday's trading session on the back of news that Medicare payments to nursing homes are being lowered by $3.87 billion, or 11.1%, in fiscal 2012, according to traders.

As a result, Golden Living, a Fort Smith, Ark.-based provider of post-acute health and wellness services, saw its term loan quoted by one trader at 95 bid, 95¾ offered, down from 96 5/8 bid, 97 1/8 offered, by a second trader at 95 bid, 96 offered, down from 97 bid, 97¾ offered, and by a third trader at 95¼ bid, 96¼ offered, down from 96¾ bid, 97¾ offered.

Also, Kindred Healthcare, a Louisville, Ky.-based health care services company, saw its term loan quoted by one trader at 98 bid, 98¾ offered versus 99 bid, 99¾ offered on Friday, by a second trader at 98 bid, 98 ¾ offered, down from 99¼ bid, 99¾ offered, and by a third trader at 97½ bid, 98½ offered. The third trader wasn't quoting the loan on Friday.

ManorCare, Sun drop

Some more names that saw a decline in loan levels because of the nursing home reimbursement action were ManorCare and Sun Healthcare, traders continued.

ManorCare, a Toledo, Ohio-based provider of short-term, post-acute services and long-term care, was quoted by one trader at 95¾ bid, 96½ offered, compared to 97½ bid, 98 offered previously, and by a second trader at 95¾ bid, 96½ offered, versus to 97½ bid, 98¼ offered. A third trader was seeing the loan at 95½ bid, 96½ offered.

And, taking what seemed to be one of the larger hits was Sun Healthcare, an Irvine, Calif.-based healthcare provider, as its term loan was quoted by one trader at 92 bid, 93 offered, down from 99½ bid, par ¼ offered. A second trader, meanwhile, was quoting the loan at no bids, 95¼ offered, versus 99 bid, par offered on Friday.

The Centers for Medicare & Medicaid Services said in a release Friday that the reduced reimbursement rate is to correct for an unintended spike in payment levels.

Paetec up, Windstream steady

Continuing on the topic of trading, Paetec's term loan B was stronger with the possibility of a refinancing in connection with its buyout by Windstream, but Windstream's term loan debt was pretty much flat, according to traders.

Specifically, Paetec's term loan B was quoted around 99½ bid, par ½ offered versus previous levels of 99 bid, par offered, traders remarked.

As for Windstream, its extended B loan was quoted at 99 5/8 bid, par 3/8 offered by traders, unchanged on the day, its non-extended B loan was quoted at 98¾ bid, 99½ offered, bid in line with Friday's levels, and its extended A loan was quoted at 99 bid, 99¾ offered after trading on Friday at 99 5/8.

Under the acquisition agreement, Paetec shareholders will receive 0.460 shares of Windstream common stock per share. Windstream expects to issue roughly 73 million shares of stock valued at $891 million, based on the company's closing stock price on July 29.

Windstream seeks amendment

In connection with the transaction, Windstream is looking to amend its senior secured credit facility to permit the issuance of bridge loans as well as the issuance and repayment of escrow notes and to eliminate the capital expenditures covenant.

The amendment would also waive guaranty and security requirements with regard to Paetec and any breach due to the change of control provisions under Paetec's outstanding notes.

J.P. Morgan Chase Bank is the administrative agent on the credit facility.

The acquisition is expected to close within six months, subject to certain conditions, including necessary approvals from federal and state regulators and Paetec shareholders.

Windstream gets commitment

In case Windstream decides to refinance Paetec's net debt of $1.4 billion at the time of closing of the acquisition, it has put in place a financing commitment for $1.1 billion, which, when combined with revolver availability, would be sufficient for the refinancing.

However, Windstream also said that following completion of the acquisition, it intends to guarantee Paetec's outstanding 9.5% senior notes due 2015, 8 7/8% senior secured notes due 2017 and 9 7/8% senior notes due 2018.

Pro forma leverage before run-rate synergies is 3.7 times and after run-rate synergies if 3.5 times.

Windstream is a Little Rock, Ark.-based communications and technology solutions provider. Paetec is a Fairport, N.Y.-based competitive local exchange carrier and provider of telecommunications services.

Inmar flexes up

Back over in the primary, Inmar raised the spread on its $210 million term loan B to Libor plus 525 bps from talk of Libor plus 475 bps, but left the 1.25% Libor floor, original issue discount of 99 and 101 soft call protection for one year intact, according to a market source.

The company's $240 million senior secured credit facility (B1/B+) also provides for a $30 million revolver talked at Libor plus 450 bps.

Wells Fargo Securities LLC and J.P. Morgan Securities LLC are the lead banks on the deal that will be used to refinance existing debt and fund a dividend.

Inmar is a Winston-Salem, N.C.-based connecter of trading partners through consulting, software services and operations.

Lion Copolymer pulls deal

Lion Copolymer withdrew its $400 million credit facility (B2/B+) from market as the clearing level that was found was wider than initial talk and, as a result, the issuer opted not move forward being that it was an opportunistic refinancing and dividend transaction, according to a market source.

The facility consisted of a $350 million six-year term loan B and a $50 million five-year revolver. At launch, the B loan was talked at Libor plus 500 bps with a 1.25% Libor floor, an original issue discount of 99 and 101 soft call protection for one year, and the revolver was talked at Libor plus 350 bps with no Libor floor and a 100 bps upfront fee.

HSBC Securities (USA) Inc. and Wells Fargo Securities LLC were the lead banks on the deal.

Lion Copolymer is a Baton Rouge, La.-based manufacturer of synthetic rubber.

Smart Modular struggling

Market talk is that Smart Modular's $300 million first-lien term loan B (B2/B+) is having a hard time filling out, even with rumors of the original issue discount being discussed in the low-90 context at the moment, a buyside source told Prospect News.

Initially, the discount was talked at 98 to 981/2, and then the talk moved to just 98.

Price talk on the B loan is Libor plus 700 bps with a 1.25% Libor floor, and there is call protection of 103 in year one, 102 in year two and 101 in year three.

Earlier, pricing on the term loan B was increased from talk in the Libor plus 650 bps area, the call protection was sweetened from 102 in year one and 101 in year two and the maturity was shortened to six years from seven years.

Smart Modular to get revolver

Smart Modular's $350 million senior secured credit facility also includes a $50 million five-year first-lien first-out revolver (B1).

J.P. Morgan Securities LLC and UBS Securities LLC are the lead arrangers and bookrunners on the deal.

Proceeds, along with up to $381 million of equity, will be used to help fund the buyout of the company by Silver Lake Partners and Silver Lake Sumeru for $9.25 per share in cash. The transaction is valued at about $645 million.

Closing is expected in the third quarter, subject to receipt of shareholder and regulatory approval.

Smart Modular is a Newark, Calif.-based manufacturer of memory modules and solid state storage products.

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