Kinetic plans downsizing; SP Newsprint firms OID; Biomet up on numbers; Delta, Northwest rise

By Sara Rosenberg

New York, April 15 - Kinetic Concepts Inc. is anticipating reducing the amount of term loan debt being obtained under its proposed credit facility, which is slated to launch later this week, as a result of a newly announced convertibles offering.

In other primary news, SP Newsprint Co. finalized the original issue discount on its term loan and KapStone Paper and Packaging Corp. came out with timing on its proposed credit facility that will be marketed primarily to commercial banks.

Moving to the secondary, Biomet Inc.'s term loan B traded higher on Tuesday following the release of earnings results, Delta Air Lines Inc. and Northwest Airlines Corp. were both better as a merger agreement was announced, and LCDX 10 and cash were stronger.

Kinetic Concepts is expecting to get smaller term loan A and term loan B tranches than what was originally outlined, being that the company will sell convertible notes; however, specifics on the amount each loan tranche will be downsized are still to be determined, according to a market source.

The company announced on Tuesday morning that it plans to offer $600 million of convertible senior notes due 2015, subject to market and other customary conditions, and that it may sell up to an additional $90 million of notes upon exercise of an over-allotment option that the initial purchasers will be granted.

In reaction to this convertibles offering, it is now thought that the company will likely get a total of $1 billion of term loan debt under its credit facility, as opposed to $1.6 billion of term loan debt, the source said.

That $1 billion of term loan debt will be divided into a term loan A and a term loan B, but specific tranche sizes have not yet been decided upon, the source continued.

Under the original structure, the five-year term loan A was expected to be sized at $1 billion and the six-year term loan B was expected to be sized at $600 million.

In addition to the term loans, Kinetic Concept's senior secured credit facility includes a $300 five-year million revolver.

The now anticipated $1.3 billion, down from $1.9 billion, deal is scheduled to launch with a bank meeting on Thursday.

Bank of America and JPMorgan are the joint lead arrangers and joint bookrunners on the deal that is fully underwritten, with Bank of America the administrative agent and JPMorgan the syndication agent.

Pricing on the revolver and the term loan A are expected at Libor plus 325 basis points, and pricing on the term loan B is expected at Libor plus 350 bps, according to a commitment letter that was filed with the Securities and Exchange Commission last week.

There is a 3.25% Libor floor for all tranches.

The revolver has a 50 bps commitment fee and any portion of the term loans that is delayed draw will have a delayed-draw fee of half the spread.

Original issue discounts are expected to be 99 on the term loan A and 95 on the term loan B, the commitment letter said.

An original issue discount in an amount equal to 1% of the amount of the commitments under the revolver will be effected in the form of an additional upfront fee equal to such amount, payable to the lenders under the revolver on the closing date.

Financial covenants include a maximum leverage ratio and a minimum fixed-charge coverage ratio.

Amortization on the term loan A is 10% in years one and two, 20% in year three, 25% in year four and 35% in year five, and amortization on the term loan B is 1% per year, with the final payment due at maturity.

Proceeds will be used to help fund the acquisition of LifeCell Corp. Under the purchase agreement, Kinetic will commence a cash tender offer to acquire all outstanding shares of LifeCell's common stock at a price of $51 per share. The transaction is valued at $1.7 billion in cash.

Pro forma leverage is expected to be around 2.9 times.

The company expects to rapidly pay down debt. In fact, leverage is anticipated to be below 1.0 times in 2010.

Based on existing operations, the combined companies are expected to generate revenue of about $2 billion in 2008.

The transaction is expected to close in the first half of 2008, subject to the tender of at least a majority of the fully diluted LifeCell shares, completion and funding financing, and the satisfaction of regulatory and other customary conditions.

Kinetic is a San Antonio-based medical technology company. LifeCell is a Branchburg, N.J.-based provider of biological products for soft tissue repair.

SP Newsprint finalizes discount

SP Newsprint firmed up the original issue discount on its $225 million term loan at 95, according to a market source. The term loan discount was originally launched at 98, it then widened to 97 and then, most recently, some accounts were hearing guidance in the 95 to 96 area.

Pricing on the term loan is set at Libor plus 700 bps, with a 4% Libor floor for life and call protection of 103 in year one.

During syndication, pricing on the term loan was flexed up from initial talk of Libor plus 600 bps.

The term loan has a one-year extension option if it is reduced to $175 million or less.

SP Newsprint's $275 million credit facility also includes a $50 million three-year asset-based revolver that is priced at Libor plus 250 bps.

There is a one-year debt reserve as part of the deal, meaning that if the company, by some chance, trips a covenant, there would be a default, but there would be funds in escrow so the loan would stay current.

GE Capital is the lead bank on the deal that already funded to finance White Birch Paper Co.'s acquisition of SP Newsprint from Media General Inc., Cox Enterprises Inc. and McClatchy Co. for $350 million.

SP Newsprint is an Atlanta-based operator of newsprint mills.

KapStone launch surfaces

KapStone Paper and Packaging set an official launch date for its proposed $585 million five-year senior secured credit facility, with the scheduling of a bank meeting for April 24, according to a markets source.

The facility consists of a $100 million revolver and a $485 million term loan, with pricing on both tranches based on a leverage grid, according to a recent 8-K filing with the SEC.

If leverage is greater than 3.25 times but less than 4.00 times, pricing will be Libor plus 275 bps; if leverage is greater than 2.75 times but less than or equal to 3.25 times, pricing will be Libor plus 237.5 bps; if leverage is greater than 2.25 times but less than or equal to 2.75 times, pricing will be Libor plus 200 bps; if leverage is greater than 1.75 times but less than or equal to 2.25 times, pricing will be Libor plus 162.5 bps; and if leverage is less than or equal to 1.75 times, pricing will be Libor plus 125 bps, the filing said.

Amortization on the term loan is 7.5% in year one, 10% in year two, 12.5% in years three and four, and 57.5% in year five.

Financial covenants include a minimum fixed-charge coverage ratio and a maximum total leverage ratio of 4.0 times with step-downs to be determined.

Estimated net debt to 2007 combined adjusted EBITDA is 3.5 times.

LaSalle Bank as administrative agent and Bank of America are the lead banks on the deal that will be used to help fund the acquisition of MeadWestvaco Corp.'s North Charleston Kraft Division for $485 million in cash, subject to certain post-closing adjustments.

The revolver is expected to be undrawn at close.

The 2007 aggregate revenues for KapStone and North Charleston Kraft are expected to be about $778 million and adjusted EBITDA is expected to be $138 million.

Borrowings under the credit facility could be significantly reduced by up to $220 million, using up to $200 million of proceeds from the exercise of outstanding warrants by August 2009 and up to $20 million of proceeds from exercise of outstanding underwriters' option and related warrants by August 2010.

In addition, the company expects the acquisition to provide substantial free cash flow, which will be used to steadily reduce the debt.

The transaction is anticipated to close by the end of third quarter, subject to customary closing conditions, including regulatory review and receipt of financing.

KapStone is a Northbrook Ill.-based producer of kraft paper and converter of inflatable dunnage bags.

Biomet better with financials

Switching to trading happenings, Biomet's term loan B gained some ground on Tuesday on the back of the company announcing financial results for its third fiscal quarter ended Feb. 29, according to a trader.

The term loan B was quoted at 98¼ bid, 98¾ offered, up from 97¾ bid, 98¼ offered on Monday, the trader said.

For the third fiscal quarter, Biomet reported net sales of $603.1 million, up 13.9% from $529.5 million for the same quarter in the prior year.

Operating loss was $5 million, compared to operating income of $124.3 million for the third quarter of fiscal year 2007, and adjusted operating income was $186.8 million compared to $161.3 million last year, an increase of 16%.

Net loss for the quarter was $88.5 million compared to net income of $85.3 million last year, and adjusted net income was $25.2 million compared to adjusted net income of $127.4 million last year.

Furthermore, adjusted EBITDA for the third quarter was $214.1 million, or 35.5% of sales.

Biomet is a Warsaw, Ind.-based designer, manufacturer and marketer of products used primarily by musculoskeletal medical specialists in both surgical and non-surgical therapy.

Delta, Northwest trade up

Delta and Northwest both saw an improvement in their bank debt levels during the trading session after news of a definitive merger agreement hit the market, according to a trader.

Delta's first-lien loan was quoted at 86½ bid, 88½ offered, up from 86 bid, 87½ offered and its second-lien term loan was quoted at 80 bid, 82 offered, up from 79½ bid, 81½ offered, the trader said.

Northwest's term loan was quoted at 86 bid, 87½ offered, up from 85¾ bid, 86¾ offered, the trader added.

Late Monday night, the two companies announced an agreement in which they would combine in an all-stock transaction with a combined enterprise value of $17.7 billion.

The merged airline company will be called Delta and will be based in Atlanta.

The transaction is expected to generate more than $1 billion in annual revenue and cost synergies from more effective aircraft utilization, a more comprehensive and diversified route system and cost synergies from reduced overhead and improved operational efficiency.

Expected liquidity of the combined company at closing is nearly $7 billion.

Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own.

The merger is subject to the approval of Delta and Northwest shareholders and regulatory approvals. It is expected that the regulatory review period will be completed later this year.

LCDX, cash move higher

LCDX and the cash market in general were both stronger on Tuesday as the overall sentiment continued to be positive, according to traders.

The index was quoted at 97.60 bid, 97.70 offered by one trader and at 97.45 bid, 97.65 offered by a second trader. On Monday, the index went out around 96.95 bid, 97.05 offered.

As for cash, levels were up about a quarter to three eighths of a point, depending on the name, traders remarked.

"It's pretty firm. Same tone we've had for the past three weeks," one trader added.

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