Kinetic Concepts sets meeting for megadeal; LCDX down a quarter; loan funds see outflows

By Paul A. Harris

Portland, Ore., Sept. 29 - Kinetic Concepts Inc. set a Monday bank meeting in London for its term loan megadeal, and the expected $2.6 billion size may be subject to downward revision, according to a source close to that deal.

The LCDX 16 bank loan index finished the Thursday session lower at 92 5/8 bid, down a quarter of a point, according to a bank loan trader based on the East Coast of the United States.

"There has not been a lot of trading going on," the source said, adding that investors remain concerned about the sovereign credit situation in Europe.

n spite of the various news reports, the perception is that the European credit situation remains very fluid, the source added.

Trading levels of recently priced deals continue to hold in, the trader said.

Sealed Air Corp.'s seven-year term loan B that bears interest at Libor plus 375 basis points was continuing to hold in unchanged at par ¼ bid, par ½ offered.

The $790 million deal priced at 98 on Sept. 23.

Go Daddy Group Inc.'s term loan, which priced on Wednesday at 93 and Libor plus 575 bps, was 94¾ bid, 95¼ offered at the Thursday close.

However, another trader spotted it as high as 95¼ bid, 96¼ offered on Wednesday.

The recent deals may have been underwritten a little too aggressively, which would help to explain why they are up a point or two, the trader said.

Meanwhile, retail bank loan funds saw outflows of $194 million for the week ended Wednesday, according to a market source who was citing numbers reported by EPFR Global.

Kinetic Concepts meeting

Kinetic Concepts will follow its bank meeting on Monday in London with a U.S. bank meeting, which is expected in the Oct. 3 week. Scheduling remains fluid.

Although the term loan portion of the financing has been given as $2.6 billion, the final size remains to be determined and could be revised downward, according to the source.

The final size of the expected $2.15 billion of high-yield bonds is also subject to revision, the source added.

The $2.15 billion bridge loan backing the bonds, now in the process of syndication, will not change, the source noted.

Bank of America Merrill Lynch, Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) Inc. and RBC Capital Markets are leading the term loan.

The credit facility also includes a $200 million five-year revolver.

The bridge loan, which is being led by Morgan Stanley, is comprised of a $1.25 billion second-lien bridge and a $900 million unsecured bridge.

The loan and bonds are part of the financing for the buyout of the company by Apax Partners, Canada Pension Plan Investment Board and the Public Sector Pension Investment Board, which are acquiring Kinetic Concepts for $68.50 per share in cash in a transaction valued at $6.3 billion, including outstanding debt.

Other funds for the acquisition are expected to come from $1.75 billion of equity.

Repayments dwarf outflows

The negative flows from retail accounts reported during September, August and at least part of July present a somewhat muddled picture of the cash that is believed to be available to put to work in bank loans, sources said on Thursday.

That's because of some massive loan repayments.

Georgia-Pacific Corp. repaid $3.3 billion of loan debt on Wednesday, according to a syndicate banker.

Earlier in the month, Ford Motor Co. and Graham Packaging Co. Inc. repaid $1.8 billion and $1.9 billion, respectively.

Meanwhile, Nycomed is expected to make a big loan paydown on Friday, the banker said.

"The fund flows reported by EPFR and Lipper (AMG) represent retail money," a trader asserted.

"They do not capture the 'supply-and-demand' picture of the bank loan market. And on top of these massive repayments, the accounts see a steady stream of coupon payments," the source added.

So in spite of a lengthy string of outflows from the retail accounts, there is considerable cash to be put to work in loans.

And it ought to translate into a decent calendar in the next two to three weeks, the trader said.

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