Integrated Defense launches add-on; US Airways DIP pulled; Xerox bounces back

By Sara Rosenberg

New York, Sept 26 - In primary activity, Integrated Defense Technologies Inc. launched a $130 million add-on to its existing term loan B, which was well received, according to market sources. Meanwhile US Airways Group Inc.'s struggling DIP was pulled from the market as a commitment was accepted from a new underwriter.

In secondary news, Rayovac Corp. broke for trading, Xerox Corp. strengthened - breaking its downward cycle - and Nortel Networks Corp. remained steady in the face of lowered earnings expectations.

Integrated Defense Technologies' $130 million add-on to the term B is now expected to have an interest rate of Libor plus 325 basis points, a fund manager who participated in the call said. "I think the existing loan is Libor plus 275 but with the increase in leverage, pricing would have to come up"

CIBC World Markets was the lead bank on the deal.

"It went pretty well. They didn't tell us anything we didn't already know," the fund manager stated. "[The add-on] puts the B loan at almost $175 million and they're increasing the size of the revolver by about $5 million."

The company is using the add-on, about $3 million from the revolver and cash on hand to fund the acquisition of a BAE Systems division, he explained.

With the increase in the facility size, the fund manager anticipates that the loan will trade better in the secondary. "We got into the original deal and a few months later we sold our positions and now it looks like we'll be back in it."

Integrated Defense is a Huntsville, Ala. provider of electronics and technology products to defense and intelligence industries.

Meanwhile, US Airways' $500 million debtor-in-possession financing facility via Credit Suisse First Boston and Bank of America Corp., with participation from Texas Pacific Group, was pulled as the company announced that it accepted a commitment from The Retirement Systems of Alabama (RSA) for a fully underwritten $500 million DIP containing essentially the same terms.

"I'm not sure how exactly that's going to work, whether the pension fund will fund the money entirely or whether they'll try to syndicate it," the fund manager told Prospect News.

Calls to the company and RSA were not immediately returned.

Credit Suisse First Boston and Bank of America had already launched the DIP for syndication in the primary bank loan market, although syndication was said to be struggling by market sources. The loan consisted of a $250 million term loan and a $250 million revolver, both due on the earlier of Sept. 30, 2003 or completion of reorganization. Interest rates on the tranches were originally set at Libor plus 350 basis points; however, the rates were recently flexed up to Libor plus 400 basis points in an attempt to gain momentum for the deal.

"That deal wasn't going too well so it's probably better for everyone that it went away," the fund manager added.

In addition to the DIP, RSA will also act as the equity sponsor under US Airways' plan of reorganization. RSA will invest $240 million for 37.5% ownership in a restructured US Airways.

The Arlington, Va. airline company filed for Chapter 11 on Aug. 11 and anticipates emergence to occur during the first quarter of 2003.

Otherwise it was relatively quiet in the primary market. "Small things are hitting here and there but I think they're finding it kind of tough because people are holding on to capital for the big [more liquid] deals," an investment banker said. "Until one of those breaks, I think it's going to be kind of slow."

By "big deals", the banker was referring to QwestDex, Burger King Corp., Ball Corp. and Del Monte Foods Co. - all of which are expected to be October business and all of which have been on market participants' minds since August.

QwestDex, a directory services company, is expected to launch approximately $1.5 billion in bank debt to help fund its leveraged buyout by The Carlyle Group and Welsh, Carson, Anderson & Stowe. JPMorgan, Bank of America, Deutsche Bank, Lehman Brothers and Wachovia Securities are lead banks on the deal.

Burger King, a Miami, Fla. hamburger fast-food chain, is expected to launch about $900 million in bank debt as part of its leveraged buyout by equity sponsors Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners from Diageo plc. JPMorgan and Salomon Smith Barney are said to be lead banks on the deal.

Ball, a Broomfield, Colo. supplier of metal and plastic packaging to beverage and food industries, is expected to launch approximately $1.55 billion in bank debt to help fund acquisition of Schmalbach-Lubeca AG. Deutsche, Bank of America, Lehman and Bank One are said to be the lead banks on the deal.

And lastly, Del Monte, a San Francisco, Calif. processed food company, is expected to launch about $1.6 billion in bank debt to help fund the merger with some H.J. Heinz Co. businesses. Bank of America, JPMorgan Chase, UBS Warburg and Morgan Stanley are the lead banks on the deal.

In secondary activity, Rayovac Corp., a Madison, Wis. battery and lighting device company, broke for trading with a bid of par and 1/8 and an offer of par and 3/8 on the institutional tranche, according to market sources.

Xerox Corp. firmed up a bit in the secondary following a two-day drop attributed to news of an accounting probe. The company's revolver was bid at 74 and offered at 75, the term loan A was bid at 85 and offered at 86 and the term loan B was bid at 95 and offered at 96, a trader said. On Wednesday the revolver was quoted around 73/75 and the term loans were said to be flat to down about a point. On Tuesday, the revolver was quoted with a bid of 75 and an offer of 76, the term loan A was quoted with a bid of 83¼ and an offer of 84¼ and the term loan B was quoted with a bid around 95 and an offer around 96

The Stamford, Conn. document company announced on Monday night that the U.S. attorney's office is conducting an investigation into past accounting issues, which had been previously reviewed by the Securities and Exchange Commission. Xerox had settled with the SEC by paying a $10 million fine, restating its financial results for the years 1997 through 2000 and adjusted its previously announced 2001 results.

Nortel Networks Corp.'s bank debt remained to be quoted in the mid-70's on Thursday, despite revising lower earnings expectations for the third quarter, according to a trader. "There was not really any change," he added.

Late Wednesday night, the communications company announced that revenues from continued operations for the third quarter are expected to be lower than second quarter revenues by approximately 15%. Previously, the company anticipated third quarter revenues to be lower than second quarter revenues by "up to approximately 10%", a news release said. The change in outlook was attributed to continued deterioration in spending by service providers, generally in the United States and for wireless networks in Asia.

"[Nortel] keeps cutting guidance," a market professional said. "When Lucent released their disappointing numbers, Nortel participants expected cuts and now they got it."

"Despite the continued challenging market environment, our top priority remains to return to profitability by the end of June of 2003," said Frank Dunn, president and chief executive officer, in the release. "We are progressing well in our restructuring plan, and we will continue to monitor the market and the spending environment and take additional actions, as appropriate, to achieve our profitability goals."

Furthermore, Nortel is assessing its liquidity needs and plans on entering into discussions with lenders regarding its existing credit facilities, all of which are currently undrawn, the release said. The company declined to elaborate on what the discussions would entail.

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