King Pharmaceuticals may see OID widen; GM, Ford head higher; Cash, LCDX slide

By Sara Rosenberg

New York, Dec. 1 - Market chatter emerged that King Pharmaceuticals Inc.'s term loan could potentially see its original issue discount increase in order to reach full subscription; however, no official changes have been announced as of yet.

In other news, General Motors Corp. and Ford Motor Co. both saw their term loans gain ground during the trading session on new hopes of a government rescue, while the overall cash market and LCDX 10 moved lower with equities.

King Pharmaceuticals OID rising?

Talk is that King Pharmaceuticals' $300 million four-year term loan may end up widening its original issue discount before wrapping, but the lead banks are still currently focusing on the initial discount pricing, according to a market source.

"I heard there's a possibility it will fill out at 94 to 95, although they're trying to push it at 96," the source told Prospect News.

As was previously reported, the term loan was launched with an original issue discount of 96 and price talk of Libor plus 500 basis points.

Currently, there is no chatter about the spread possibly changing, the source added.

Amortization on the term loan is 15% in year one, 20% in years two and three and 45% in year four.

Credit Suisse and Wachovia are the joint lead arrangers and bookrunners, with Credit Suisse the administrative agent.

King structure changed prior to launch

Originally, King Pharmaceuticals was expected to come to market with a $1 billion senior secured credit facility (Ba2/BBB-). At launch, however, lenders were presented with an entirely new structure that involved the $300 million term loan and keeping the existing $475 million revolver in place.

The original structure was going to be comprised of a $150 million revolver talked at Libor plus 500 bps, a $350 million term loan A talked at Libor plus 500 bps with an original issue discount of 96 and a $500 million term loan B talked at Libor plus 550 bps with an original issue discount of 95.

With the news structure, the company's existing revolver will be amended to increase pricing to Libor plus 500 bps from Libor plus 87.5 bps and allow for the new term loan debt.

In addition, under the amendment, the commitment fee on the revolver would be raised to 50 bps from 20 bps, lenders would receive a 100 bps amendment fee for their consents, and there would be mandatory quarterly commitment reductions of 15% in year one and 20% in years two and thereafter, with the remainder due at maturity on April 2012.

King loan for Alpharma purchase

Proceeds from King Pharmaceuticals' proposed term loan, along with $425 million in revolver borrowings, will be used to help fund the acquisition of Alpharma Inc. for $37 per share in cash for a total equity value of about $1.6 billion.

Initially, Alpharma had rejected the buyout proposal, so King took the offer directly to Alpharma shareholders. However, last week, Alpharma announced that it decided to sign a definitive purchase agreement with King after all.

The tender offer for Alpharma's shares will expire on Dec. 19.

Other financing for the acquisition will come from cash on hand. The amount of company cash being used for the deal will be increased as a result of the reduction in the amount of term loan debt.

Leverage through the credit facility will be 1.0 times and total leverage will be 1.5 times.

King is a Bristol, Tenn.-based integrated branded pharmaceutical company. Alpharma is a Bridgewater, N.J.-based specialty pharmaceutical and animal health company.

GM, Ford trade up

Moving to the secondary market, General Motors and Ford saw their term loans strengthen as people became more optimistic about a government bailout for these companies, according to traders.

General Motors, a Detroit-based automotive manufacturer, saw its term loan quoted at 43 bid, 44 offered, up from 41 bid, 43 offered, traders said.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 41¾ bid, 42½ offered, up from 41 bid, 43 offered, traders continued.

"Going back to the table to negotiate with the government so people are hopeful that some new deal will be reached. People may be hesitant to sell these right now especially if they think they're going to get something," one trader added.

Cash, LCDX soften

The cash market in general was weaker, other than autos, and LCDX 10 dropped as the stock market got hit hard on Monday, according to a trader.

Cash overall was down about a half a point to a point, with equities the primary driver behind the move, but some profit taking may have been involved as well as the loan market was up last week, the trader remarked.

"Very quiet today," a second trader said, explaining that the lack of activity may have been because people were just coming back from the long holiday weekend and also there's a situation where investors don't really want to do much before year end.

The trader went on to say that December may be a very quiet month in terms of secondary activity.

Meanwhile, LCDX ended the day around 76.75 bid, 77.50 offered, down from Friday's levels of 79.60 bid, 80.10 offered, the trader continued.

As for stocks, Nasdaq closed down 137.50 points, or 8.95%, Dow Jones Industrial Average closed down 679.95 points, or 7.70%, S&P 500 closed down 80.03 points, or 8.93%, and NYSE closed down 506.64 points, or 9.05%.

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