ServiceMaster LBO risk offering upsizes to $1 billion; 90-day lock-up on U.S. Foodservice loan expires

By Paul A. Harris

St. Louis, Oct. 5 - The pending Columbus Day holiday in the United States thinned the ranks of players in the leveraged loan market on Friday, sources said.

Nearing the early close, a trader spotted the LCDX Series 9 index at 99.7 bid, 99.8 offered, up from 99.65 bid, 99.75 offered at the Thursday close.

Meanwhile traders were spotting the cash market 1/8 to ¼ point higher.

An upbeat syndicate official on a loan desk said: "Things are a lot better today.

"The payroll number surprised people to the upside," the official added, recounting that the Labor Department reported Friday that the U.S. economy created 110,000 new jobs in September, topping expectations and suggesting that the economy is continuing to grow.

"People are feeling better about the loan space," the syndicate source asserted.

"The liquidity that has been sitting on the sidelines is coming in."

This source also said that there are reports that the big investment banks are teaming to create a loan fund to take out $170 billion of the estimated $300 billion-plus of hung debt resulting from unsyndicated loans and unplaced junk bonds in the wake of the mid-summer credit market collapse.

"The recent economic data, while not totally helpful, is not really hurting us," the syndicate official said.

"And the technical picture is getting better. There are also more whispers that the CLO markets may come back sooner than expected.

The overhang

The hung debt to which the official referred dominated the news during Friday's market session.

Underwriters upsized to $1 billion from $750 million the portion of ServiceMaster LBO-related risk that is being offered for sale.

The clearing price remains 95.

Citigroup, J.P. Morgan, Goldman Sachs, Morgan Stanley and Bank of America led the $4.45 billion financing, which backed Clayton, Dubilier & Rice's $5.5 billion buyout of ServiceMaster.

The bridge loans were funded when the LBO closed, in July.

Although sources reported that the deal was sold on Friday, traders did not see any of the ServiceMaster debt trading in the secondary market.

Elsewhere a source reported that the 90-day lock-up on hung debt related to the U.S. Foodservice LBO expired on Friday.

The source, a trader, said that some of that debt is reported to have traded at 94.

The trader added that such a trade would not be unreasonable given that it is a B3/B-, highly leveraged, covenant-light deal.

However, the trader saw bids as low as 90 on the U.S. Foodservice loans, and added that underwriters are now free to sell it, individually, at whatever level they want.

Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and Royal Bank of Scotland were the lead banks on the deal.

Guitar Center bank meeting

Guitar Center, Inc. held a bank meeting on Friday for its downsized $650 million seven-year term loan B.

The loan, which is part of an overall $1.025 billion senior secured credit facility, via JPMorgan, was downsized earlier from $800 million.

The deal also features a $375 million asset-based revolver.

Guitar Center is being acquired by Bain Capital Partners LLC for $63.00 in cash per share. The total transaction value, including assumed debt, is $2.1 billion.

Other LBO financing will come from $605 million in equity and $640 million of junk bonds.

NV Broadcasting expected OID

Meanwhile a market source said that NV Broadcasting, LLC (New Vision Television) is expected to offer its $215 million six-year first-lien term loan B and its $120 million seven-year second-lien term loan both at original issue discounts of 98.

A syndicate source declined to comment when contacted on Friday by Prospect News.

The first-lien tranche is talked with an interest rate of Libor plus 300 basis points, with a 101.0 soft call.

The second-lien tranche is talked at Libor plus 650 to 675 basis points. The second-lien term loan is callable in one year at 102.0, with the call premium declining to 101.0 in the second year.

There are maximum total leverage and minimum interest coverage covenants on both the first-lien and second-lien tranches.

The first- and second-lien term loans are parts of an overall $390 million credit facility which includes a $25 million six year revolver talked at Libor plus 300 basis points, and a $30 million senior unsecured holdco loan.

Proceeds will be used to help fund the acquisition of Montecito Broadcast Group, LLC, and to refinance existing debt.

Air Canada allocates

The Air Canada Technical Services $421 million first-lien term loan priced Friday at 97.

The Libor plus 325 basis points loan came on top of the price talk, and was seen trading in the secondary market at 97¼ bid.

Elsewhere traders reported that the secondary market was quiet.

"Bank loans are holding up much better than Treasuries," one trader said.

This source is expecting a buildup of supply in the market during the coming fortnight.

Among the expected deals, the trader added, are Manor Care Inc.'s $900 million senior secured credit facility via JPMorgan, Credit Suisse and Bank of America.

This source and others said that around $5 billion of the TXU Corp. bank debt could surface sooner than later.

On a somewhat longer timeline, the trader added, Chrysler Corp. LLC is expected to return with some of the $10 billion of hung up term debt related to the LBO.

This trader, who marked the cash market up a quarter of a point on Friday, said that the existing Dex Media East term loan traded at 99 7/8 bid, 100 1/8 offered, up ½ point.

The yellow pages company is in the market with a new $1.2 billion credit facility (Ba1) via JPMorgan and Wachovia.

Archstone-Smith closes

Meanwhile Archstone-Smith Trust closed its acquisition by affiliates Tishman Speyer Real Estate Venture VII, LP and Lehman Brothers Holdings Inc. for $60.75 per share. The merger was valued at $22.2 billion.

Financing included a $5.131 billion senior secured credit facility (BB-) via leads Lehman, Bank of America and Barclays. Tranches included a $750 million four-year revolver at Libor plus 300 bps, a $2.4 billion four-year term A at Libor plus 300 bps with an original issue discount of 99 and a $1.981 billion five-year term B at Libor plus 325 bps that will be syndicated later.

Archstone-Smith is an Englewood, Colo.-based real estate investment trust that develops and operates apartment communities in the United States.

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