Secondary prices continue upward momentum as demand outweighs supply

By Sara Rosenberg

New York, May 3 - In secondary bank loan market activity, credits for the most part continued to move up during Friday's trading hours, according to a fund manager. Due to the lack of primary deals, there is not enough supply in the secondary to meet the amount of demand, causing paper to trade up, he explained.

For example, market talk is that Seagate Technology International's $350 million five-year term B may have been flexed down to Libor plus 200 basis points from Libor plus 250 basis points. "This is an indication of how strong the market is," the fund manager said. The syndicate was not immediately available to confirm the change in price.

Seagate, a Scotts Valley, Calif. disk drive manufacturer, launched a $500 million credit facility(Ba1/BB+) recently that consists of a $150 million five-year revolver and a $350 million five-year term B. J.P. Morgan Securities and Morgan Stanley Senior Funding are joint lead arrangers and joint bookrunners. JP Morgan Chase Bank is the administrative agent and Morgan Stanley Senior Funding is syndication agent. Proceeds will be used to refinance the existing credit facility and repay 12½% senior subordinated notes due 2007.

Adelphia Communications Corp.'s levels did not show much of a reaction to the rating downgrade by Moody's Investors Service of its senior secured bank debt to Ba3 from Ba2.

According to the fund manager, the market anticipated the downgrade. In addition, the ratings release highlighted the value of Adelphia's collateral and operations, which, "bodes well for the recovery of the company's bank debt," the fund manger said.

"Importantly, the one notch downgrade reflects our belief that the company's many immediate obstacles, including the imminent requirement to file its financial statements in order to cure its current bank loan agreement defaults, the need to gain renewed access to undrawn bank lines in order to avert a liquidity crisis, and the need to satisfy both the NASDAQ and the SEC and maintain its common stock listing in order to preclude the put of convertible securities back to the company, will all be satisfactorily addressed in very short order," the Moody's said in their release explaining the rating action.

In primary activity Friday, Shoppers Drug Mart Corp. held a bank meeting for its new $435 million term loan B (Ba1), according to a syndicate source. CIBC is the lead bank on the deal. Closing on the loan is expected to occur around the end of May.

The North York, Ont. drugstore chain's new term loan will expire in approximately 6.75 years and has an interest rate of Libor plus 225 basis points, the syndicate source said. Proceeds will be used to refinance existing debt. Basically all assets will be used to secure the loan.

The deal is oversubscribed, according to the syndicate. "We had a great conference call, great investor interest and company performance is very strong," the syndicate source said. "It was pretty much subscribed before the launch. We'll probably stop taking commitments some time next week," he added.

Mobile Storage Group Inc. held a bank meeting regarding its new $200 million secured credit facility (Ba3/BB), according to a company spokesman. Credit Suisse First Boston and Lehman Brothers are co-leads on the deal. Closing on the credit facility is anticipated to take place on the effective date of the IPO, which most likely will occur in June, the company spokesman said.

The La Crascenta, Calif. renter and seller of containers, offices and trailers for storage purposes company's loan consists of a $60 million five-year revolver and a $140 million term B tranche, the company spokesman said. Security for the facility is a first priority lien on all tangible and intangible assets. Proceeds will be combined with proceeds from an initial public offering to repay existing debt.

Coming up next week are the long anticipated offerings by The Borgata and Boyd Gaming Corp. The Borgata, a $1 billion entertainment resort under construction in Atlantic City, is expected to hold a bank meeting on May 9 regarding a new $187.5 million term loan B (B+/B2 senior implied) priced with an interest rate of Libor plus 400 basis points and a maturity date of Dec. 13, 2007, according to a syndicate source. CIBC is the sole lead arranger for the deal. The resort is being developed through a joint venture with Boyd Gaming Corp. and MGM Mirage.

"The Borgata is a unique deal for the market because it's a brand new state of the art facility in Atlantic City and it has good sponsorship," a fund manager said.

According to the syndicate source, some tickets have already been received "which is great" because the launch is still almost a week away.

Boyd Gaming Corp., a Las Vegas, Nev. gaming company, is scheduled to hold a bank meeting on May 9 regarding its $500 million credit facility (Ba1/BB), according to a syndicate source. CIBC is sole lead arranger for the deal.

The loan is expected to consist of a $400 million five-year revolver with an interest rate of Libor plus 250 basis points and a $100 million five-year term B with an interest rate of Libor plus 250 basis points. There is a commitment fee of 50 basis points on the revolver.

Proceeds will be used to refinance $200 million of senior notes, which are due in October 2003, according to a Securities and Exchange Commission filing.

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