New issue spreads lower and tighter as loan repayments leave investors with excess cash

By Sara Rosenberg

New York, June 11 - Average new issues spreads have been getting tighter and tighter as many deals have recently seen similar pricing on pro rata and institutional tranches. Furthermore, spreads over Libor have been getting lower in a market where investors have plenty of cash, new funds continue to ramp up and issuance has failed to keep up with repayments and demand.

"Average new issue spreads have dipped to 300 or below," a market professional remarked. "For the past month ended June 5, the average institutional new issue spread was 300 and the average pro rata was 296. This is the tightest it's been since at least first quarter 2001. The average for May was 312 on institutional and 293 on pro rata. For first quarter 2003, 315 on institutional and 296 on pro rata. And for first quarter 2002, 389 for institutional and 326 for pro rata."

In line with this recent trend, there have been an inordinately large number of deals that have flexed down this week, including CBD Media LLC, United Components Inc., Vivendi Universal Entertainment, WEG Acquisitions LP, CSK Auto Corp. and Fairchild Semiconductor International Inc.

CBD Media's $160 million 61/2-year term loan B flexed down by a whopping 75 basis points to Libor plus 325 basis points. "I'm told this is the largest flex in history. It's pretty remarkable considering it's a dividend deal," a market professional said.

The Cincinnati directories publisher's $165 million secured credit facility (Ba3/B+) also contains a $5 million six-year revolver.

Lehman Brothers and Bank of America are leading the deal, which will be used to repay existing senior indebtedness and provide a cash dividend to the existing equity holders, with TD Securities participating in the syndicate as well.

Vivendi's $950 million five-year term loan (Ba2/BB+) was flexed down by 50 basis points to Libor plus 300 basis points. Furthermore, there's talk that the term loan may be increased to anywhere from $1.2 billion to $1.4 billion, a market source said.

JPMorgan and Bank of America are leading the Paris media, entertainment and telecom company's deal, which will be used to refinance a $1.6 billion bridge facility. Barclays is also involved in the syndicate.

United Components' $300 million term loan B was flexed down by 50 basis points to Libor plus 325 basis points, according to market sources.

The $415 million credit facility (B1/BB-), increased from $390 million after the bond deal was downsized, also contains $115 million pro rata with an interest rate of Libor plus 325 basis points.

Lehman and JPMorgan are leading the deal that will be used to help fund leveraged buyout of the Jersey City, N.J. auto parts manufacturer by the Carlyle Group from UIS Inc.

WEG Acquisitions' $200 million term loan (Ba3/BB+) was flexed down by 25 basis points to Libor plus 425 basis points. The deal had already been flexed down once since its launch date to Libor plus 450 basis points from Libor plus 475 basis points, according to sources.

Lehman is leading the deal that will be used to help fund the acquisition of Williams Energy Partners LP by Madison Dearborn Partners LLC and Carlyle/Riverstone Global Energy and Power Fund II LP.

CSK's $225 million six-year term loan B flexed down by 25 basis points to Libor plus 275 basis points and a pricing grid was added to the deal, although specific details on the grid were not immediately available.

The $325 million credit facility (Ba3/BB-) also contains a $100 million five-year revolver with an interest rate of Libor plus 275 basis points.

JPMorgan and Credit Suisse First Boston are leading the deal for the Phoenix retailer of automotive parts and accessories, which will be used to refinance an existing asset-based loan.

Fairchild Semiconductor's $300 million five-year term loan B flexed down by 25 basis points to Libor plus 275 basis points.

The $475 million credit facility (Ba3/BB-) also contains a $175 million four-year revolver with an interest rate of Libor plus 250 basis points.

Deutsche Bank and Fleet are leading the South Portland, Maine semiconductor company's deal that will be used to retire high-yield bonds.

As for Wednesday's primary activity Alaris Medical Systems Inc. launched a $265 million senior secured credit facility (B1/BB-) via Citigroup Global Markets Inc. and UBS Securities LLC. CIBC and Bear Stearns are also involved in the deal.

The facility consists of a $235 million six-year term loan B with an interest rate of Libor plus 325 basis points and a $30 million five-year revolver with an interest rate of Libor plus 300 basis points.

Pro forma senior secured leverage will be 2.4 times EBITDA while pro forma total leverage will be 4.4 times.

Security for the loan is basically all company assets.

Proceeds will be used by the San Diego developer of medication safety solutions to fund tender offers, reduce debt and general corporate purposes.

Quintiles Transnational Corp. launched its $425 million credit facility (B1), consisting of a $75 million four-year revolver with an interest rate of Libor plus 325 basis points and a $350 million five-year term loan B with an interest rate of Libor plus 350 basis points.

Citigroup is leading the deal that will be used to help fund the merger with Pharma Services Holdings Inc.

Quintiles is a Durham, N.C. provider of product development and commercial development solutions to pharmaceutical, biotechnology and medical device industries.

Worldspan LP's bank meeting on Tuesday was well attended, according to a syndicate source, and some early commitments have come into the deal already.

Interestingly, there is an option on this deal to commit $15 million, with $10 million going towards the term loan, which is being offered at 99, and $5 million going towards the revolver, which gives 150 basis points upfront. In return for committing to both tranches in this fashion, the investor gets 2% bond economics.

"People would do this because they want the bond economics," the syndicate source explained. "[Plus] there didn't seem to be a lot of interest in committing to the revolver alone."

The $150 million credit facility consists of $100 million term loan and a $50 million revolver. Both tranches have a term of four years and price talk of Libor plus 450 to 500 basis points.

Lehman Brothers and Deutsche Bank are the lead banks on the deal, which is targeted to close by the end of the month.

Proceeds will be used to help fund the previously announced leveraged buyout of Worldspan from its three airline owners by Travel Transaction Processing Corp., a company formed by Citigroup Venture Capital Equity Partners LP and Teachers' Merchant Bank.

Worldspan is an Atlanta travel technology resource for travel suppliers, travel agencies, e-commerce sites and corporations.

In the secondary, the bank loan market in general has been very active, however, Calpine Corp. and Goodyear Tire & Rubber Co. stood out in some peoples' minds.

Calpine's term loan B traded around 98 on Wednesday, up from around 97½ previously, according to one trader. The tranche opened at 97½ bid, 98 offered and ended the day at around the same levels, according to a second trader.

Goodyear, for no particular reason, was reported to have traded very actively at either side of 95 during market hours, according to a trader. One trader put these trading levels at slightly lower, while a second trader said it was slightly higher, although in either case the change seems to be fairly minimal.

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