Allied Waste cuts B size; Movie Gallery resets meeting; Fender oversubscribed; Telcordia trades canceled

By Sara Rosenberg and Paul A. Harris

New York, March 9 - In primary activity on Wednesday, Allied Waste Industries Inc. downsized its term loan B after closing on an upsized mandatory convertible offering, Movie Gallery Inc. rescheduled the bank meeting for its credit facility to next week from Wednesday due to the poor New York weather conditions and Fender Musical Instruments Corp. launched to a very positive reception as the books filled up and then some, even without the release of price talk.

In the secondary, Telcordia Technologies Inc. was really the main attraction as the syndicate announced that all bank loan trades are canceled with no explanation given as to why.

Allied Waste reduced the size of its seven-year term loan B to $1.35 billion from $1.45 billion since the company completed a mandatory convertible preferred stock offering that was upsized to $600 million from $500 million, a company spokesperson told Prospect News on Wednesday.

The term loan B is priced with an interest rate of Libor plus 225 basis points.

The $1.55 billion five-year revolving credit facility, which is priced at Libor plus 275 basis points, and the $450 million institutional letter-of-credit facility, which is priced at Libor plus 225 basis points, were left unchanged in terms of size.

Basically with the new facility, the Scottsdale, Ariz., waste services company is increasing its existing revolver from $1.5 billion to enhance liquidity and will also be downsizing its term loan debt.

JPMorgan and Citigroup are the lead banks on the deal, with JPMorgan the left lead.

Allied Waste had already received commitments in excess of the $1.55 billion revolver prior to the bank meeting in late-February.

Proceeds from the now $3.35 billion credit facility (B1/BB/BB-), along with proceeds from a the completed common stock issuance, mandatory convertible preferred stock issuance and senior notes issuance, will be used to repay the remaining $195 million of 10% senior subordinated notes due 2009, repay $125 million of 9.25% senior notes due 2012, repay the $600 million 7.625% senior notes due January 2006, repay the $70 million 7.875% senior notes due March 2005 and fully repay amounts outstanding under the existing credit facility.

"By eliminating significant debt maturities over the next few years, these successful equity and debt transactions allow us to focus on the execution of our operating strategy, including continued reinvestment in our business," said Pete Hathaway, executive vice president and chief financial officer of Allied Waste, in a company news release. "We are pleased that we were able to upsize the $500 million mandatory convertible preferred stock offering by 20% to $600 million."

Movie Gallery resets launch

Movie Gallery was forced to push off the bank meeting to launch its $720 million senior secured credit facility until Tuesday of next week from Wednesday of this week since management couldn't fly into New York on Tuesday night due to adverse weather, a market source said.

The facility consists of a $95 million five-year term loan A with an interest rate of Libor plus 275 basis points, a $550 million six-year term loan B with an interest rate of Libor plus 300 basis points and a $75 million five-year revolver with an interest rate of Libor plus 275 basis points.

Commitments have already started coming in for the deal with investors liking the relatively short maturities of the tranches - five and six years - as well as the fact that the term loans amortize well before their final maturities, the source said.

"With the video rental industry being what it is, everybody wants to know the future of video rental especially since you have things like Netflix and video on demand now," the source said in explanation of why the shorter maturities and amortization schedules have been influential on investors' decision to get involved in the deal.

Wachovia Capital Markets LLC is the sole lead arranger, sole bookrunner and administrative agent on the credit facility, and Merrill Lynch will be involved in the loan as well.

Wachovia committed 90% of the debt financing package and Merrill Lynch committed 10%.

Proceeds from the term loans and a proposed bond offering will be used to pay the approximately $850 million purchase price for Hollywood Entertainment Corp, plus the assumption of about $350 million of debt. Movie Gallery will be acquiring all of the outstanding shares of Hollywood for $13.25 per share in cash.

Revolver borrowings will be available for working capital and general corporate purposes.

The revolver contains an accordion feature allowing for the expansion of the tranche by $25 million under certain circumstances.

The transaction, which is subject to Hollywood shareholder approval, customary regulatory approvals and financing, is expected to be completed during the second quarter of 2005.

Movie Gallery's board of directors has already unanimously approved the transaction.

Hollywood's entry into the merger agreement with Movie Gallery occurred at the conclusion of an auction process led by a special committee of its board of directors during which various bids were solicited.

However, following the Movie Gallery/Hollywood merger announcement, Blockbuster Inc. began a hostile takeover bid, offering to purchase for cash any and all of Hollywood Entertainment's outstanding $225 million 9.625% senior subordinated notes due 2011 and all outstanding shares of Hollywood for $14.50 in value, comprised of $11.50 in cash and $3.00 in Blockbuster class A common stock.

On Wednesday, Blockbuster extended the two tender offers until March 24 from the original March 11 deadline.

As of the close of business on Tuesday, a total of 292,049 shares of Hollywood common stock had been tendered and about $69.892 million in principal amount of Hollywood notes had been tendered.

"The bottom line is that if the FTC came back and said go ahead [to Blockbuster] then it's an attractive offer. But, Blockbuster [is] in like 80% of the markets and I think people think there's way too much overlap and that the process will just drag on. We'll see what happens," a sellside source previously told Prospect News on Tuesday.

Movie Gallery is a Dothan, Ala.-based owner and operator of video specialty stores. Hollywood is a Wilsonville, Ore.-based (and will remain based there following completion of the acquisition) video chain.

Fender overfills

Fender Musical Instruments launched its $320 million credit facility via a bank meeting on Wednesday and was greeted with strong investor appetite as both term loans were already "oversubscribed" by the afternoon, according to a market source.

The facility consists of a $50 million revolver (B1/B+), a $170 million term loan (B1/B+) and a $100 million second-lien term loan (B3/B-). Price talk on the tranches is not out as of yet, the source added.

Goldman Sachs is the lead bank on the recapitalization deal.

Fender is a Scottsdale, Ariz., manufacturer of guitars, amplifiers and related equipment.

KGen expects Thursday allocations

KGen Partners LLC expects to allocate its once again revised credit facility on Thursday as the second-lien term loan is now subscribed, according to a market source.

The deal was reworked on Tuesday to upsize the 61/2-year first-lien term loan (B2/B) to $325 million from $300 million and downsize the 61/2-year second-lien term loan (B3/B-) to $150 million from $175 million, the source said.

Furthermore, the first-lien term loan was reverse flexed to Libor plus 262.5 basis points from Libor plus 300 basis points and call protection was changed to 101 in year one from 101 in years one and two.

The second-lien term loan was flexed up to Libor plus 900 basis points - split between Libor plus 325 basis points cash payout and Libor plus 575 basis points PIK - from Libor plus 700 basis points - split between Libor plus 300 basis points cash payout and Libor plus 400 basis points PIK.

Lastly, call protection on the second-lien term loan was revised to 103 for two years and par thereafter from 101 for two years, the source added.

This is the second round of changes that have been made to the deal since it first launched. On March 1, the syndicate upsized the first-lien term loan to $300 million and downsized the second-lien term loan to $175 million being that the first-lien tranche was at least two times oversubscribed while the second-lien tranche was still in the process of attracting enough orders to fill the book. Also, pricing on the second-lien term loan was increased to Libor plus 700 basis points - split between Libor plus 300 basis points cash payout and Libor plus 400 basis points PIK - from Libor plus 600 basis points - split between Libor plus 300 basis points cash payout and Libor plus 300 basis points PIK.

Both term loans are offered at par.

Closing on the credit facility is targeted for Tuesday.

Credit Suisse First Boston is the lead bank on the credit facility that will be used to refinance existing bank debt, repay seller notes and increase liquidity.

KGen, which is owned by MatlinPatterson Global Opportunities Partners II, purchased Duke Energy's merchant generation assets in the southeast United States last year.

Chiquita zeroing in on timing

Chiquita Brands International Inc. is getting closer to nailing down timing on its bank meeting, with the $600 million deal now expected to launch during the week of March 21, compared to the previous timetable of sometime around mid-March, according to a market source.

Wachovia and Morgan Stanley are joint lead arrangers and joint bookrunners on the deal, with Wachovia the left lead, and Goldman Sachs as documentation agent.

The facility is anticipated to consist of a $150 million five-year revolver, a $100 million five-year term loan A and a $350 million seven-year term loan B, the source said, adding that the structure is still somewhat fluid at this point.

The pro rata tranche sizes are slightly different then those listed in the commitment letter that the company filed with the Securities and Exchange Commission in late-February.

In the commitment letter, the term loan A was sized at $150 million and the revolver was sized at $150 million to $200 million, depending on the amount of proceeds received from proposed junior debt offerings.

Also, according to the commitment letter, the term loan A and the revolver are talked at Libor plus 175 basis points, and the term loan B is talked at Libor plus 225 basis points. The revolver will carry a commitment fee of 50 basis points.

The company is getting the new credit facility, and plans on using at least $350 million in gross proceeds from the issuance of unsecured senior notes and convertible securities, as well as $75 million of cash on hand, to finance the $855 million cash acquisition of the Fresh Express fresh-cut produce segment of Performance Food Group Co. and refinance existing Chiquita debt.

If proceeds from the notes and convertible offering exceed $350 million, commitments under the term loan tranches will be reduced, the commitment letter said.

If proceeds from the notes and convertibles are in excess of $300 million, the revolver will be reduced dollar-for-dollar up to $50 million, bringing it to the currently anticipated size of $150 million.

Borrowings under the revolver will be primarily available for working capital requirements and general corporate purposes.

Chiquita has also received a commitment for a $225 million one-year term loan C with an interest rate of Libor plus 375 basis points just in case the notes and convertibles are not issued prior to closing of the transaction.

Pro forma for the acquisition, the company's debt to EBITDA ratio is expected to be 4 times and EBITDA to interest coverage of 3.5 times, but by 2006 the debt ratio should drop below 3 times and interest coverage rise to more than 5 times.

Closing of the transaction is expected to be complete during second quarter.

Chiquita is a Cincinnati marketer, producer and distributor of bananas and other fresh produce.

Telcordia trades canceled

In an odd twist, the syndicate on Telcordia's $670 million credit facility (B1/B+) announced on Wednesday that all trades on the bank debt, which just broke for trading at the end of last week, are being canceled and all lender commitments to the deal are being canceled as well, according to market sources.

No explanation was given, but there is a conference call scheduled for 10 a.m. ET Thursday to discuss the situation, a source said.

"The bonds aren't going to close so I think the call tomorrow will decide if the bank debt will close," a second source said.

The $300 million senior subordinated notes due 2013, which were supposed to fund on Wednesday, were canceled due to questions about the company's compliance with a "material adverse conditions" clause, a high-yield buyside source told Prospect News.

"My understanding is that the company did not disclose what those conditions were, and JPMorgan told them if they did not disclose those conditions the deal is canceled. This is rare, and I've never heard of a deal being canceled due to a disclosure issue," the high-yield source said about the bond deal.

Telcordia's credit facility consists of a $570 million term loan B with an interest rate of Libor plus 200 basis points and a $100 million revolver with an interest rate of Libor plus 250 basis points. The term loan B had been upsized from $520 million after the bond deal was downsized by the equivalent amount and reverse flexed from Libor plus 250 basis points during syndication.

Proceeds from the credit facility and the bonds were supposed to be used to help fund the leveraged buyout of Telcordia by Providence Equity Partners and Warburg Pincus for $1.35 billion in cash.

JPMorgan, Bear Stearns, Deutsche and Lehman were the lead banks on the credit facility, with JPMorgan the left lead.

Telcordia is a Piscataway, N.J, provider of telecommunications software and services for IP, wireline, wireless and cable.

Fidelity National closes

Fidelity National Information Services Inc. (FIS), a subsidiary of Fidelity Financial Inc. (FNF), closed on its $3.2 billion senior credit facility (Ba3/BB/BB-) consisting of an $800 million term loan A, $400 million revolver and $2 billion term loan B, with all three tranches priced at Libor plus 175 basis points.

Originally the term loan A was sized at $1 billion and the term loan B was sized at $1.8 billion, but $200 million was shifted into the B from the A during syndication. Furthermore, pricing on the term loan B came down from Libor plus 200 basis points during syndication.

Bank of America, JP Morgan Chase, Wachovia, Deutsche Bank and Bear Stearns were the lead banks on the deal.

Proceeds from the two term loans were used to help fund the recapitalization of the company. In late December, the company entered into a stock purchase agreement under which it would sell an approximately 25% minority equity interest in its common stock to an investment group led by Thomas H. Lee Partners LP and Texas Pacific Group for a total purchase price of about $500 million.

The revolver was undrawn at closing.

"The closing of both the FIS recapitalization and the minority equity interest sale are significant milestones in our strategy of recognizing the embedded value of FIS," said William P. Foley II, chairman and chief executive officer, in a company news release. "These are key steps toward our goal of more fully unlocking the value of FIS.

"We look forward to working with both Thomas H. Lee Partners and Texas Pacific Group in this process of both continuing to grow the FIS business and maximizing the value of the FIS asset for FNF stockholders. Additionally, the closing of the recapitalization of FIS will now allow the FNF board of directors to formally declare and pay the previously announced $10 per share special cash dividend."

Fidelity National Information is a Jacksonville, Fla., provider of technology solutions, processing services and information services to the financial services and real estate industries.

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