Rite Aid pricing firms at 96; LCDX up a point; Quebecor exit financing details emerge

By Paul A. Harris

St. Louis, May 29 - The leveraged loan market was stronger Thursday, with the LCDX index closing at 84¼ bid, up a point on the day, according to a syndicate official.

Cash loans gained ¾ points, the source added.

On the week the index gained approximately 2 points, while cash loans advanced 1½ to 2 points, the source added.

Meanwhile the combination of inflows to the loan asset class and pay downs of existing loans is creating scarcity, according to a bank loan portfolio manager.

Rite Aid prices at 96

Rite Aid Corp. priced its upsized $525 million term loan due 2015 at 96 on Friday, according to a market source.

The deal, which was upsized from $500 million after having been previously upsized from $400 million, is set to allocate on Tuesday or Wednesday.

The term loan comes with a 3% Libor floor, and is callable immediately at 105. The call premium declines to 103 after one year and to 101 after two years.

Citigroup, Bank of America, Wells Fargo and GE Capital are the joint lead arrangers on the deal, with Citi the left lead.

Proceeds will be used to refinance the company's $145 million term loan tranche 1 due 2010, and repay and cancel a portion of the commitments outstanding under its revolver.

In conjunction with the term loan, the company launched an amendment to its existing credit facility to, among other things, allow for the new debt and the completion of a refinancing plan.

In an 8-K recently filed with the Securities and Exchange Commission, the company said that the new term loan is part of a comprehensive plan to refinance its September 2010 debt maturities, including its accounts receivable securitization programs.

The refinancing is hoped to be done through a combination of a new revolver, new term loans, the issuance of high-yield notes, which may be secured on a first- or second-priority basis or unsecured, or the entry into a new securitization program.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

Quebecor term loan talked at 88

Elsewhere Quebecor World set pricing for its $325 million term loan at 88 during a bank meeting on Friday, according to an informed source.

The Libor plus 600 bps three-year term loan is part of Quebeor's $675 million exit financing credit facility.

There is also a $350 million revolver talked at Libor plus 450 basis points with an unused fee that can range from 75 bps to 100 bps.

On Friday investors were offered 2 points up front on allocations of up to $50 million, and 2.5 points for allocations above $50 million.

Both tranches have a 3% Libor floor.

The Quebecor exit facility is being done via lead arrangers Credit Suisse, GE Capital Markets and Wachovia, with Credit Suisse the left lead on the term loan and GE the left lead on the revolver.

In addition to the exit facility, the company's new capital structure contemplated under its plan of reorganization would include up to $75 million of new unsecured notes, new convertible preferred shares, about 73.3 million of new common shares, about 10.7 million of new warrant bundles and a yet-to-be-determined cash payment.

The new capital structure would be exchanged for the $2.7 billion of liabilities subject to compromise and for repayment of the company's debtor-in-possession financing facility.

Quebecor is a Montreal-based printing and marketing company.

Scarcity ahead

Two or three loans were paid off during the final week in May, a bank loan investor stated in a regretful tone.

Characteristic was the senior secured credit facility and revolver of Leap Wireless International Inc., which paid off the bank debt with proceeds from a new $1.1 billion issue of 7¾% senior secured notes due 2016.

"Some of the good loans are getting knocked out," the portfolio manager lamented.

"We've been looking for scarcity, and now we have it."

The slack might be taken up in the primary market, the investor mused.

However deal flow ought reasonably to be pegged to economic activity, which this money manager expects to remain "quite poor for an extended period of time."

Rising prices

Despite an economy that continues to boast only of "green shoots," technical forces are pushing up prices in the loan secondary, the money manager said.

"Over the past week we've seen an incredible rise in prices," the investor asserted.

"Ford is trading in the 70s! That's amazing. It had been in the 40s."

Ford loan paper was at 70¾ bid, a banker said shortly after the Friday close.

"The market tone is weird because everybody thinks it has gone too far too fast, and yet it keeps going up," the money manager said.

"People are assuming it's because there is so much cash coming into the market."

Cash inflows

Bank loan mutual funds saw $111 million of retail cash this week, a banker said, citing information from AMG Data Services.

The bank loan fund manager, who saw the same number, insisted that these mutual funds flows numbers only paint a small part of the overall cash picture.

"There are a lot of institutions that have been putting together proposals to build bank loan portfolios for months now," the investor said.

"And fast money is coming back into bank loans," the source added.

"It's getting difficult to buy loans.

"It is getting to the point where bank loans are 'fair value.'

"They are no longer cheap.

"You can buy really good stuff in the mid-to-high 90s. But if you're looking to get something cheap - in the mid-70s or even in the 80s - you're going to be picking bones."

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