Reliant, El Paso up on talk of pay downs from rumored capital market deals

By Sara Rosenberg

New York, Jan. 22 - Talk of potential bank debt pay downs and rumors of high-yield bond offerings have been pushing a number of names higher this week in the secondary bank loan market with two of the latest companies mentioned being Reliant Resources Inc. and El Paso Corp.

About $30 million of Reliant's bank paper traded on the Street on Thursday right around 98 5/8, according to a trader, who placed the debt in the 98¼ bid, 99 offered context prior to this activity.

"There are some rumors about a potential bond deal being used to take out bank debt," the trader said. "There's also talk of some asset sales."

As was previously reported by Prospect News, Reliant is said to be seeking bids for its New York state power plants, including two in New York City and several others upstate.

El Paso's revolver was quoted at 99 1/8 bid, 99½ offered on Thursday, compared to quotes of 98 bid, 98¾ offered last week, according to a trader.

"There're rumors of a capital markets deal possibly being done. I don't know if it's true," the trader said.

Last Friday, the Houston gas and energy company announced that it has agreed to sell 25 domestic power generation facilities to Northern Star Generation LLC, a wholly-owned subsidiary of AIG Highstar Generation LLC, for about $746 million plus the assumption of about $174 million of consolidated non-recourse debt. Proceeds from the sale will be used for debt repayment and general corporate purposes.

On Wednesday it was NRG Energy Inc. that was rumored to be doing a $500 million bond deal that would be used to pay down about half of the company's term loan. And, in fact, the Minneapolis-based power company ended up doing a drive-by $475 million add-on to its 8% notes after market close on that very day.

The term B was quoted at 103¼ bid, 103¾ offered on Wednesday basically unchanged from previous levels, however some expect levels to move closer to the 103 call protection level due to the expected pay down.

HealthSouth Corp. was another name buoyed by rumors of a potential revolver pay down/ refinancing on Wednesday with levels moving to 97 bid, 98 offered, compared to previous levels of 95 bid, 96 offered. According to one trader, there was a rumor floating around that the Birmingham, Ala., healthcare services provider may do a bond deal to pay down its revolver and possibly even reduce its revolver size.

Calpine softens after run-up

Meanwhile, Calpine Corp.'s bank debt came in a little bit to 99 bid, par offered after heading higher earlier this week on the back of improved bond performance, according to a trader.

On Wednesday the bank debt was quoted at 99½ bid, par ½ offered "or maybe even a little higher", the trader said. Meanwhile, the bonds were seen up around three points on most tranches during Wednesday's market hours.

"It ran up earlier this week. It was bound to soften a little bit," the trader said regarding the San Jose, Calif., energy company's bank debt performance.

Calpine also announced an asset sale last Friday under which the company received a cash payment of about $150 million for its 50% interest in the 545-megawatt Lost Pines 1 Power Project from GenTex Power Corp. However, Calpine plans to use the proceeds to acquire additional power generation assets.

Overall though, the secondary has been pretty quiet, according to many traders, with lots of bids out there but no offers, making it somewhat of a frustrating environment for many participants.

"I'm bid in seven or eight different names and so is every dealer," a trader said in exasperation. "And, the current pipeline of deals doesn't give enough appeal to satisfy appetite."

"Nobody is selling paper," a second trader complained. "There is nothing exciting."

Arinc books filling up

Indications from people close to the deal are that the books on Arinc Inc.'s proposed $200 million secured credit facility (Ba3/BB), which launched via a bank meeting this past Tuesday, "are going pretty well", a fund manager told Prospect News.

The facility consists of a $125 million term loan B due 2011 talked at Libor plus 250 basis points and a $75 million revolver due 2009 talked at Libor plus 200 basis points. Both tranches contain a pricing grid based on leverage.

"Spreads are kind of low given the nature of the business," the fund manager said. "There's probably more risk out there than they're letting on to or willing to pay for. But, it's supposedly going well and I would imagine that we would commit. I couldn't imagine us not doing it."

Wachovia is the lead bank on the deal that will be used to help fund a benefit pension plan, refinance existing bank debt and refinance existing bond debt.

Arinc is an Annapolis, Md., provider of transportation communications and systems engineering solutions for aviation, airports, defense, government and transportation.

Masonite may break Friday

Masonite International Corp.'s add-on deal may allocate and break for trading on Friday, according to a source close to the deal, as the syndicate is simply waiting on a few more lender signatures to officially complete the amendment.

Approvals for the amendment were due on Thursday, however, a couple of lenders still had not signed off on the deal by Thursday evening.

"I'm not expecting any problems," a source said. "The add-on was oversubscribed. There were pretty strong commitments coming in from existing lenders. [But, they're] still waiting for a few more signatures. Allocations won't happen until the last signature is in."

The add-on consists of a $50 million term loan A with an interest rate of Libor plus 200 basis points and a $150 million term loan B with an interest rate of Libor plus 225 basis points.

SunTrust is the sole lead bank on the loan.

Proceeds from the amended facility will be used to help fund the $160 million cash acquisition price of The Stanley Works' residential entry door business.

The company currently has a revolver and term loan C with an interest rate of Libor plus 275 basis points, both of which will remain in place and unchanged. These are the tranches that need to be amended to allow for the $160 million cash acquisition of The Stanley Works' residential entry door business and the additional bank debt, which will be used to fund the acquisition.

On a pro forma basis and immediately after the expected closing date, the company's pro forma debt-to-equity ratio is estimated to be about 0.9-to-1 and its pro forma debt-to-EBITDA ratio is estimated to be about 2.5-to-1, based on 12 months trailing results and not including any cost benefits from the combination.

Masonite is a Mississauga, Ont., building products company.

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