Levi's term loan may contain fixed-, floating-rate tranches, pricing still to be determined

By Sara Rosenberg

New York, Sept. 16 - Levi Strauss & Co.'s bank meeting left some investors unclear about certain aspects of the deal as terms, such as pricing and structure, seem to be fluid at the moment and other details, such as call protection and whether a Libor floor will be included in the terms of the agreement, require further study.

Also launching Tuesday was Dobson Communications Corp.'s $700 million senior credit facility, which has been oversubscribed on the institutional side since mid-to-late last week and is now currently working on filling out the revolver.

Levi's $1.15 billion credit facility was expected to consist of a $650 million asset-based revolver maturing in 2007 and a $500 million senior secured term loan maturing in 2009.

However, there's a possibility that the term loan may not be just one large term loan B but rather divided into two different segments with different pricing.

"They're contemplating doing two tranches on the term loan - one being a fixed-rate and one being a floating-rate. I'm unclear on how that's going to work, whether you can get only floating-rate or have to commit to both. I'd rather have floating especially if rates are going to go up," the market source said.

Pricing on the revolver was set at Libor plus 275 basis points. Pricing on the term loan is still to be determined, according to a market participant. Previous talk had the term loan anticipated at north of Libor plus 500 basis points.

"They don't have firm pricing on the term loan. It will be determined shortly. I think they're trying to assess what people are expecting or what they would require," the market participant said.

"I think it's also kind of going to depend on ratings. I think by the end of the week they should have [the ratings] back," he added.

A Libor floor, which was anticipated to be included in the terms of the new deal, was not mentioned during that bank meeting, according to the source. However the company did raise the issue of call protection, stating that the bank debt would be non-callable for 2½ years.

Whether the call protection means that the company cannot repay any bank debt before the 2½ years is up was unclear, the source said, adding: "I find that hard to believe so I need to follow up on that. If they sell assets we don't want them to keep all that money."

The covenant package is another issue that some potential participants may not find all that enticing, although Levi's would probably be quite happy with it. "There's only one covenant on this deal, which is going to be a fixed charge coverage ratio at 1x, so that's not all that attractive either" the source said.

Lastly on the source's list of items that need further investigation is the collateral package, under which the revolver has a first lien on working capital assets and the term loan has a second lien on those assets as well as a first lien on any Levi's trademarks, according to the source, who admitted that although the trademark is probably worth quite a lot, he is still not "crazy about the way the collateral package is split up".

Overall, the deal is expected to get done, as the syndicate continues to feel out the market and figure out where pricing needs to be set in order to attract institutional attention. Commitments are due on Sept. 22.

"I think they're being a little optimistic there. I don't see that happening especially with all the open issues. It's very different than the normal run-of-the-mill new deal that comes out. I would think there were quite a few people listening [to the meeting]. It's a big deal and the existing deal is pretty big too. [But], I think this is going to take a while. It's not like the other deal we've seen where once they had the bank meeting the book filled up."

Bank of America is the lead bank on the deal, which will replace the San Francisco brand name clothing company's existing senior secured credit facility consisting of a $375 million revolver and $365 million term loan, as well as $110 million of debt arranged under an accounts receivables securitization.

Dobson's bank meeting was very well attended and the deal is essentially done as far as the term loan B is concerned as investors showed support for the company's decision to consolidate two credit facilities - the Dobson Operating Co. credit facility and the Dobson/Sygnet credit facility - into one, resulting in a simplified capital structure.

The facility consists of a $550 million 61/2-year term loan B with price talk in the Libor plus mid-300's area and a $150 million six-year revolver with price talk in the Libor plus low-300's area, according to a source close to the deal. The company has some bonds maturing in seven years so the syndicate opted to leave some room in between the bank and bond maturities to avoid any investor hesitation, which explains the slightly unusual tenor of the institutional tranche.

Proceeds from the bank facility and an upsized $650 million bond offering will be used to refinance and replace outstanding borrowings under the existing credit facilities, to fund the repurchase of Dobson/Sygnet Communications Co.'s 12¼% senior notes and to fund the repurchase of a portion of the outstanding $250 million 12¼% senior preferred stock.

Despite the decision to increase the bond offering by $50 million, the company has opted to leave the credit facility at its initially anticipated size of $700 million.

Lehman Brothers and Bear Stearns are joint lead arrangers and book managers on the deal and Morgan Stanley is an underwriter as well.

Dobson is an Oklahoma City provider of rural and suburban wireless communications services.

Interestingly, the Dobson deal has not only enticed investors in the primary, but has also attracted secondary players to trade and heavily focus on various wireless names such as Nextel Communications Inc., Western Wireless Corp. and Rural Cellular Corp., according to a trader.

Nextel's D tranche traded at par, and the term loan B and term loan C were quoted at par ½ bid, par ¾ offered. Western Wireless traded around 99 during market hours and Rural Cellular traded at 983/4.

All three of these companies' bank debt saw a fair amount of activity on Tuesday at unchanged levels, according to the trader.

"They're consolidating at high levels, which is nice to see. There's been a big run up over the last several days. People like to see it stabilizing and hanging in at the higher levels," the trader said.

"Dobson doing a new deal makes these levels make sense," the trader said, explaining that as Dobson attempts to refinance its bank debt investors are gaining more confidence in the ability of these other wireless companies to eventually refinance their bank debt as well.

Meanwhile, DRS Technologies Inc.'s $512.5 million credit facility, which was tentatively set to launch via a bank meeting on Thursday, is now slated for Sept. 23, according to a syndicate release. Bear Stearns and Wachovia are the lead banks on the deal, which consists of a $362.5 million term loan B and a $150 million revolver.

According to market sources, pricing on the tranches are expected in the Libor plus 275 basis points area.

Proceeds, combined with proceeds from a bond offering, will be used to help fund the acquisition of Integrated Defense Technologies Inc. The transaction is expected to close by the end of this year, subject to customary regulatory approvals and other closing conditions.

DRS is a Parsippany, N.J. supplier of defense electronic products and systems.

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