Nexstar term B breaks in upper pars; Talk circulates that Movie Gallery may shift funds to loan from notes

By Sara Rosenberg

New York, March 28 - Nexstar Broadcasting Group Inc./Mission Broadcasting Inc. allocated its $455 million credit facility (Ba3/B+) on Monday, with the term loan B seen trading in the upper par region after the break.

Meanwhile, in the primary, some speculation has started to be heard about Movie Gallery Inc.'s credit facility potentially seeing an upsizing and its bond deal potentially seeing a downsizing based on the strong interest the loan has received and the recent back-up in the high-yield market.

Nextstar's term loan B freed up for trading on Monday with quotes spotted at par ½ bid, 101 offered by day's end, according to a trader.

The $355 million 71/2-year term loan is priced with an interest rate of Libor plus 175 basis points. The tranche is divided into two parts - a $182.3 million piece and a $172.7 million piece - with one term loan going to Nexstar and one going to Mission Broadcasting.

The facility also contains a $100 million seven-year revolver with an interest rate of Libor plus 125 basis points - which is divided into two $50 million tranches, one going to each borrower.

Bank of America, UBS and Merrill Lynch are joint lead arrangers on the deal, with Bank of America the administrative agent and UBS and Merrill co-syndication agents.

The facility, which is expected to close this Friday, will be used to fund the redemption of the company's $160 million outstanding 12% senior subordinated notes due April 1, 2008 and refinance debt.

The company is also working on a $75 million tack-on to its existing 7% subordinated notes due 2014 with proceeds going toward note redemption as well.

Nexstar is an Irving, Texas, television broadcasting company.

Movie Gallery may see loan increase

Movie Gallery Inc.'s $720 million senior secured credit facility may see an increase in size if the syndicate decides to downsize the proposed $475 million senior notes offering, which should be launching soon now that Blockbuster Inc. has dropped its hostile takeover bid for Hollywood Entertainment Corp., according to a market source.

"Now that there's clarity vis-a-vis the Blockbuster issue, the junior capital leg of the financing will take place," the market source told Prospect News on Monday. "Given the fact that the bank deal went so well, I think you could see a change in size of the notes. There's a chance the bank deal may be increased. I think it's definitely heading toward more bank than bonds, but nothing is official yet. There won't be any changes to the bank deal until [the bonds] come to market."

Movie Gallery's credit facility currently consists of a $95 million five-year term loan A with an interest rate of Libor plus 275 basis points, a $550 million six-year term loan B with an interest rate of Libor plus 300 basis points and a $75 million five-year revolver with an interest rate of Libor plus 275 basis points.

Commitments started coming in for the loan way before the actual bank meeting took place around mid-March with some pointing to the relatively short maturities of the tranches - five and six years - as well as the fact that the term loans amortize well before their final maturities, as key characteristics working in favor of the deal.

Wachovia Capital Markets LLC is the sole lead arranger, sole bookrunner and administrative agent on the credit facility, and Merrill Lynch will be involved in the loan as well.

Wachovia committed 90% of the debt financing package and Merrill Lynch committed 10%.

Proceeds from the term loans and the proposed bond offering will be used to pay the approximately $850 million purchase price for Hollywood, plus the assumption of about $350 million of debt. Movie Gallery will be acquiring all of the outstanding shares of Hollywood for $13.25 per share in cash.

Revolver borrowings will be available for working capital and general corporate purposes.

The revolver contains an accordion feature allowing for the expansion of the tranche by $25 million under certain circumstances.

Hollywood's entry into the merger agreement with Movie Gallery occurred at the conclusion of an auction process led by a special committee of its board of directors during which various bids were solicited.

However, following the Movie Gallery/Hollywood merger announcement, Blockbuster began a hostile takeover bid, offering to purchase for cash any and all of Hollywood Entertainment's outstanding $225 million 9.625% senior subordinated notes due 2011 and all outstanding shares of Hollywood for $14.50 in value, comprised of $11.50 in cash and $3.00 in Blockbuster class A common stock.

On Friday, Blockbuster announced that its tender offers for Hollywood's notes and stock expired and would not be extended.

"Our decision not to extend our offers was reached after a careful review of all of the available facts and circumstances. Among those things that played prominently for us were Hollywood's recent public filings and the unlikely resolution of our request for regulatory clearance on an acceptable timetable. Given the current circumstances, in our judgment it is not in Blockbuster's best interest to continue to pursue the acquisition," said John Antioco, Blockbuster chairman and chief executive officer, in a company news release.

Following the Blockbuster announcement, Movie Gallery made one of its own, praising its pending acquisition of Hollywood.

"We believe that Movie Gallery's definitive agreement to acquire Hollywood is in the best interests of Hollywood's shareholders, employees, and customers. Movie Gallery has already received regulatory approval and we look forward to closing the Hollywood transaction promptly after the Hollywood shareholder vote on April 22, 2005," said Joe Malugen, chairman, president and chief executive officer of Movie Gallery, in the company news release.

"Our combined company will be the second largest North American video rental company with annual revenue of approximately $2.6 billion and approximately 4,500 stores located in all 50 U.S. states, Canada and Mexico. With a broader geographic presence and greatly improved distribution capabilities and scale, our combined company will be a strong competitor, well-positioned for continued success in urban, suburban and rural markets," Malugen added in the release.

Movie Gallery is a Dothan, Ala.-based owner and operator of video specialty stores. Hollywood is a Wilsonville, Ore.-based (and will remain based there following completion of the acquisition) video chain.

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