Repricing rampage roars on, secondary holds in; SunGard plans $400 million add on; Simmons prices PIK

By Paul A. Harris

St. Louis, Feb. 2 - Trailing the close a syndicate source told Prospect News that it had been a typical Friday in the leveraged loan market: pretty slow.

However, the source added, the tone remained pretty much where it has been for the past couple of weeks, which is very strong.

"We're not seeing too much primary issuance, but there are a lot of repricings," the source said.

"And the secondary bid remains strong."

The repricing surge

The list of companies attempting to lower their interest rates grew on Friday as Insight Midwest (Insight Communications Co. Inc.) came with an amendment that would lower the rate on its term loan B by 25 basis points, reducing the Libor margin to 200 basis points from 225 basis points, according to a market source.

Banc of America Securities and JP Morgan are leading the amendment effort.

The cable television system operator closed on its $1.80 billion term loan, a debt refinancing deal, last October.

Meanwhile Jarden Corp., a Rye, N.Y.-based provider of niche consumer products, is also seeking to amend its Libor plus 200 basis points term loan B, in part to lower the interest rate to Libor plus 175 basis points.

Lehman Brothers is leading Jarden's debt refinancing, which also includes a $400 million offer of 10-year senior subordinated notes and a tender for $180 million of the company's 9¾% senior subordinated notes due 2012, and the repayment of $200 million of its term loan debt.

There is approximately $820 million of the term loan outstanding with an interest rate of Libor plus 200 basis points. The refinancing would decrease the amount outstanding to approximately $700 million.

Jarden also has approximately $380 million of a term loan B outstanding at Libor plus 175 basis points. The refinancing would reduce that amount to approximately $280 million.

Repricing volume not seen before

A syndicate source who spoke to Prospect News on Friday professed having never seen repricings hit the market at the volume presently being seen.

Earlier in the week Education Management Corp., SunGard Data Systems Inc., and West Corp. all came with amendments seeking to reprice their respective term loans by 50 basis points.

When Prospect News asked a trader what impact the repricings were having on loan prices in the secondary market, the source said that everything that gets repriced trades down a quarter to three-eighths, but the repricings do not create big trade offs.

For example, the trader saw the Insight Midwest term loan trade at 100 bid, 100.875 offered, slightly off. However, the source added, the paper seemed to be regaining traction, and appeared to be heading back toward the "unchanged" mark.

The most dramatic move this trader had seen was that of HCA Inc.'s term loan B, which was repriced downward by 50 basis points, and subsequently traded down three-eighths to a half.

News earlier in the week Neiman Marcus Group is seeking to lower the rate on its term loan B caused the loan to initially trade off three-eighths of a point, the trader said.

However Neiman Marcus was regaining some of that ground, going out Friday off an eighth of a point to a quarter of a point.

Elsewhere a syndicate source said that that Neiman Marcus might be thinking about doing a dividend-funding bond deal at the holding company level.

"People are speculating that's one of the reasons that they pre-released earnings," the official said, adding that "it could happen because of where the operating company bonds are trading."

"The bank loan market and bond market are in very good shape right now, from the borrower's perspective," the source said, adding that there is presently "a lot of liquidity" in both.

Lean times for an investor

As Prospect New perused the day's market news with a bank loan investor - repricings, holding company PIK deals, etc. - it became obvious that while the market may be great from the borrower's perspective, it leaves something to be desired from the lender's perspective.

"Every new deal that comes out with price talk of 250 is flexing down to 200," the investor lamented.

"B2 corporate family credits coming at Libor plus 200 can't go on too much longer. That's way off, historically. The assumption, last year, would have been 75 basis points wider than that.

"Some people just do not look at coupons on these companies if they are under 225 basis points. And right now every single repricing seems to be at 200."

Asked whether the present circumstances are just a matter of too much cash chasing an insufficient amount of new issuance the investor said: "You keep hearing commentary that the pick up in issuance will widen things out.

"But it seems to me that issuance is pretty darn strong, right now, and things are only getting tighter."

To lend some perspective, the investor invited Prospect News to consider that if a hypothetical money manager has $20 billion of bank loans under management, that manager has to put to work $600 million per month just to stay even, because that is what is refinanced on an average basis.

The forward calendar

SunGard Data Systems, mentioned above in the context of its repricing effort, announced Friday that it is in the market with a $400 million add-on to its existing $4.0 billion term loan B.

The add on will increase the size of the loan to $4.4 billion from $4 billion.

Proceeds would be used to redeem all or a portion of the company's $400 million senior floating-rate notes due 2013.

Meanwhile the company is seeking to lower the interest rate on the loan by 50 basis points, which would pare the rate to Libor plus 200 basis points from Libor plus 250 basis points.

The repricing has been launched via JP Morgan.

Elsewhere IFM (Industry Funds Management) will take part in a bank meeting on Wednesday for a $225 million five-year term loan B via Merrill Lynch.

Proceeds will be used to fund a portion of the acquisition of the 15.8% minority interest in Colonial Pipeline held by Citgo Petroleum Corp. for $641 million. The financing also includes $426 million of equity.

PIK deals

Simmons Holdco, Inc. priced its $275 million five-year senior unsecured PIK toggle term loan on Friday at an issue price of 99.00 with a cash-pay coupon of Libor plus 525 basis points.

The deal came on top of price talk.

Deutsche Bank Securities, Goldman Sachs & Co. and Citigroup were joint bookrunners.

The notes will feature a 75 basis points coupon step-up in the event the issuer elects to make an in-kind (as opposed to cash) interest payment.

Elsewhere Netherlands-based Louis Topco Ltd., the holding company for CEVA Logistics, has talked its €250 million PIK loans due June 2017 to price at an issue price of 99.00, and pay interest at a 775 basis points spread to Libor.

The loans, which will be exchangeable into notes, are expected to price on Monday.

Credit Suisse is the bookrunner.

Proceeds from Simmons and CEVA will be used to fund dividends.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.