Salix slides with onslaught of negative news; Southeast PowerGen, Essar Steel, US LBM break

By Sara Rosenberg

New York, Nov. 7 – Salix Pharmaceuticals Ltd.’s term loan weakened in trading on Friday on the back of announcements of the review of characterizations of wholesaler inventory levels, the resignation of its chief financial officer and earnings results.

In more happenings, Southeast PowerGen LLC’s credit facility made its way into the secondary market with levels on its term loan quoted above its original issue discount, and Essar Steel Algoma Inc. and US LBM broke for trading as well.

Salix softens

Salix Pharmaceuticals’ term loan was lower in trading on Friday as investors reacted to investigation news, a management change and financials, according to traders.

The term loan was quoted by one trader at 97¼ bid, 97¾ offered, down from par bid, par ¼ offered, and by a second trader at 97 bid, 98 offered, down from 99 bid, par offered.

In the morning, the company revealed in a 10-Q filed with the Securities and Exchange Commission that it retained outside counsel and is conducting a review of issues related to management’s prior characterizations of wholesaler inventory levels.

And, on Thursday, the company disclosed that Adam C. Derbyshire, executive vice president, finance and administration, and chief financial officer, resigned. Timothy J. Creech was appointed as acting chief financial officer and the company has hired Korn Ferry, an executive search firm, to assist in identifying an individual to be the permanent chief financial officer.

Salix earnings

Also on Thursday, Salix came out with third quarter numbers, including GAAP net loss of $88.6 million, or $1.39 per diluted share, compared to GAAP net income of $47.3 million, or $0.71 per diluted share, in the third quarter of 2013.

In addition, total net product revenue was $354.7 million for the quarter, versus $238.2 million in the prior year, primarily driven by the acquisition of Santarus, the company said in a news release.

For the full year, Salix expects total net product revenue of about $1.4 billion, down from previous estimates of around $1.6 billion, EBITDA of around $573 million, down from prior estimated of about $650 million, and non-GAAP net income of around $400 million, or $5.20 per diluted share, down from previous estimates of about $475 million, or $6.16 per diluted share.

Salix is a Raleigh, N.C.-based developer and marketer of prescription pharmaceutical products and medical devices for the prevention and treatment of gastrointestinal diseases.

Southeast PowerGen trades

In more secondary happenings, Southeast PowerGen’s credit facility broke with the $480 million seven-year term loan B quoted at par bid, par ½ offered, a trader said.

Pricing on the term loan B is Libor plus 350 basis points with a 1% Libor floor and it was sold at an original issue discount of 99. There is 101 soft call protection for one year.

During syndication, the spread on B loan was trimmed from talk of Libor plus 375 bps to 400 bps.

Along with the term loan, the company’s $550.5 million senior secured credit facility includes a $70.5 million five-year revolver.

Morgan Stanley Senior Funding Inc., MUFG Union Bank and Citigroup Global Markets Inc. are leading the deal that will be used to fund the acquisition by the Carlyle Group of 75.05% of the outstanding interests and operational control of Southeast PowerGen from ArcLight Capital Partners and GIC, to repay existing debt, to fund an operating expense reserve account, to partially fund a debt service reserve and to make a distribution to GE EFS.

Southeast PowerGen is a portfolio of six natural gas-fired power plants in Georgia.

Essar hits secondary

Essar Steel Algoma’s $375 million 4¾-year first-lien term loan B began trading as well, with levels quoted at 99 bid, par offered, according to a trader.

Pricing on the loan is Libor plus 650 bps with a 1% Libor floor and it was sold at an original issue discount of 98. There is 101 hard call protection in years one and two.

During syndication, the term loan was upsized from $350 million, pricing was raised from revised talk of Libor plus 550 bps and initial talk of Libor plus 475 bps to 500 bps, the discount widened from 99 and the call protection as sweetened from a 101 soft call for one year.

Deutsche Bank Securities Inc., Goldman Sachs Bank USA and Jefferies Finance LLC are leading the deal that will be used with $375 million of senior secured notes, upsized from $350 million, and $249 million in junior exchange notes, revised from $275 million of junior secured notes, to refinance the company’s capital structure.

Essar Steel is a Sault Ste. Marie, Ont.-based manufacturer of hot and cold rolled steel products.

US LBM breaks

US LBM’s fungible $150 million tack-on senior secured term loan due May 2020 freed up too, with levels seen at 98¼ bid, 99¼ offered, according to a market source.

Pricing on the tack-on term loan is Libor plus 700 bps with a 1% Libor floor and it was sold at an original issue discount of 98. There is call protection of 102 in year one, 101½ in year two and 101 in year three.

With the tack-on loan, pricing on the company’s existing $200 million term loan is being increased to Libor plus 700 bps with a 1% Libor floor from Libor plus 625 bps with a 1% Libor floor, and the existing loan is getting the same call protection as the tack-on loan.

Credit Suisse Securities (USA) LLC is the lead bank on the deal.

Proceeds from the tack-on loan will be used to fund two acquisitions.

Existing lenders were offered a 25 bps amendment fee to consent to the transaction.

US LBM is a Green Bay, Wis.-based owner of building material distribution businesses.

Styrolution closes

In other news, Styrolution (Styrolution Group GmbH and Styrolution US Holding LLC) completed the placement of a new roughly €1.05 billion equivalent five-year covenant-light term loan B (B2/B), a news release said.

The term loan B, split between a $662,550,000 U.S. tranche and a €525 million tranche, is priced at Libor/Euribor plus 550 bps with a 1% Libor floor and was sold at an original issue discount of 98. There is 101 soft call protection for one year.

During syndication, pricing was lifted from talk of Libor/Euribor plus 450 bps to 475 bps and the discount was revised from 99.

Barclays, J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC led the deal, with Barclays the left lead on the U.S. piece and JPMorgan the left lead on the euro piece.

Styrolution junior debt

Along with the term loan B, Styrolution got a €200 million second-lien PIK toggle loan that was fully subscribed by Ineos Group Holdings and is priced at 9½% cash/10¼% PIK. There is a mandatory PIK feature if net total leverage is more than 3.25 times.

Proceeds are being used to help fund Ineos’ acquisition of BASF SE’s 50% share in Styrolution so that it becomes a wholly owned standalone company within Ineos, and to redeem Styrolution’s existing 7 5/8% senior secured notes due 2016.

Originally, the company was planning on getting €400 million of junior debt, but when the junior debt was downsized, the company opted to make up the remaining €200 million acquisition consideration with equity contributed by Ineos AG.

Styrolution is a Frankfurt, Germany-based styrenics supplier.

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