Cengage Learning dips on acquisition news; VeriFone falls with restatements; LCDX weakens

By Sara Rosenberg

New York, Dec. 3 - Cengage Learning (formerly Thomson Learning) saw its term loan B slide lower in trading on Monday after the company announced acquisition plans that would result in some additional debt.

In other trading news, VeriFone Holdings, Inc.'s term loan B was also softer during the trading session as investors were spooked by news of necessary restatements, and LCDX headed down in light activity.

Cengage Learning's term loan B bounced around on Monday, dropping pretty noticeably on the company's newly announced acquisition plan but then regaining some of the lost ground before day's end, according to a trader.

More specifically, the term loan B fell to 94 bid, 94½ offered early on in the session before coming back to 94 3/8 bid, 94¾ offered, where it closed out the day, the trader said. On Friday, the paper went out at 94 7/8 bid, 95 1/8 offered, so despite the slight rebound, levels where still lower on a day-over-day basis.

The negative momentum came on the heels of the company revealing that it will acquire Houghton Mifflin College Division from Houghton Mifflin Co. for $750 million in cash.

This purchase price will be funded by a term loan B add-on and equity provided by Apax Partners and Omers Capital Partners, the current owners of Cengage.

The debt/equity split of the purchase price is not public yet.

The term loan B add-on, which will not contain Most-Favored-Nation language, will be done under the $750 million accordion feature that's present in the company's existing credit agreement.

RBS Securities is the lead bank on the incremental bank debt.

The transaction is expected to close in four to six months, subject to regulatory approvals and other customary conditions.

Cengage is a Stamford, Conn., provider of print and digital instructional and reference materials for the higher education and library reference markets. College Division is a publisher of textbooks, study guides, technology tools and other materials primarily for introductory-level college courses.

VeriFone down on restatements

VeriFone's term loan B dropped off during market hours after the company announced that it will need to restate financial results for the periods ended Jan. 31, 2007, April 30, 2007 and July 31, 2007, according to a trader.

The term loan B ended the day at 97 bid, 98 offered, down from 97¾ bid, 98¾ offered, the trader said.

On Monday morning, VeriFone said that it will need to restate previous financial results because of errors in accounting related to the valuation of in-transit inventory and allocation of manufacturing and distribution overhead to inventory.

As a result of the accounting errors, the company overstated previously reported inventories in material amounts and understated cost of net revenues in material amounts.

Based on its review to date, the company currently anticipates that the restatement will result in reductions to previously reported inventories of approximately $7.7 million as of Jan. 31, 2007, $16.5 million as of April 30, 2007, and $30.2 million as of July 31, 2007.

In addition, the company expects reductions to previously reported pre-tax income of approximately $8.9 million for the three-month period ended Jan. 31, 2007, $7 million for the three-month period ended April 30, 2007 and $13.8 million for the three-month period ended July 31, 2007.

VeriFone also announced on Monday that it expects to report total revenues for the three months ended Oct. 31 of approximately $238 million and for the 12 months ended Oct. 31 of approximately $904 million.

The company's management and the audit committee of its board of directors have decided to delay the release of full fourth-quarter financial results that were scheduled to come out on Dec. 6, pending completion of the assessment of the errors and the restatements.

The amended quarterly reports, together with the company's 10-K for the fiscal year ended Oct. 31, are currently estimated to be filed in January.

"I am very disappointed to have to bring you this news and am committed to ensuring that we promptly and thoroughly remedy this situation and move forward with the business of delivering value to our shareholders. I am committed to regaining your confidence in VeriFone," Douglas G. Bergeron, chairman and chief executive officer, said in a company news release.

VeriFone is a San Jose, Calif., provider of electronic payment services.

LCDX slips lower

LCDX 9 was a touch weaker on Monday in light trading in an overall secondary market that had a somewhat negative tone, according to traders.

The index went out at 96.50 bid, 96.65 offered, down from Friday's levels of 96.80 bid, 96.90 offered, traders said.

As for the cash market, one trader said, "Everything was feeling heavy. I don't think it was down a quantified point but I think that sentiment was negative."

"It was just quiet today," a second trader added. "Very quiet."

Husky readies allocations

Moving to primary happenings, Husky Injection Molding Systems Ltd. wrapped syndication of its $495 million credit facility at initial terms and is targeting giving out allocations later this week or early next week, according to a market source.

The facility consists of an $85 million revolver and a $410 million term loan, with both tranches priced at Libor plus 325 basis points.

The term loan was sold to investors with an original issue discount of 991/2.

RBC Capital is the lead bank on the deal.

Proceeds will be used to help fund the buyout of the company by Onex Corp. for C$8.235 for each share not held by Robert and Elizabeth Schad or their holding company and for C$8.10 per share for the shares held by the Schads and their holding company. The total transaction value is about C$960 million.

Husky Injection Molding is a Bolton, Ont., supplier of injection molding equipment and services to the plastics industry.

Sequa closes

The Carlyle Group completed its buyout of Sequa Corp. for $175.00 per share in cash, according to an 8-K filed with the Securities and Exchange Commission Monday. The total transaction value was $2.7 billion.

To help fund the buyout, Sequa got a new $1.35 billion senior secured credit facility (B1/BB-), consisting of a $150 million six-year revolver priced at Libor plus 325 bps, with a 50 bps commitment fee, and a $1.2 billion seven-year term loan priced at Libor plus 325 bps that was sold at an original issue discount of 95.

During syndication, the discount on the term loan was increased from original guidance that was in the 98 area.

There is a maximum senior secured leverage ratio covenant contained in the credit facility.

Lehman Brothers, Citigroup and JPMorgan acted as the lead banks on the deal.

Sequa is a New York-based diversified industrial company.

A&P closes

The Great Atlantic & Pacific Tea Co., Inc. (A&P) completed its acquisition of Pathmark Stores, Inc. for $1.4 billion in cash, stock and assumed or retired debt, according to a news release.

To help fund the transaction, A&P got a new $675 million ABL credit facility comprised of a $547.1 million revolver, a $45 million last-out revolver advance and a term loan of up to $82.9 million.

Originally, the company was planning on getting a $615 million ABL revolver consisting of a $575 million tranche with pricing expected at Libor plus 175 bps and an up to $40 million last-out tranche with pricing expected at Libor plus 300 bps, but the credit facility commitment was revised in early November.

Bank of America acted as the lead bank on the deal.

A&P is a Montvale, N.J.-based supermarket chain. Pathmark is a Carteret, N.J.-based supermarket chain.

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