Seminis details emerged; market looks ahead to post-Labor Day

By Paul A. Harris

St. Louis, Aug. 27 - As the leveraged loan market continued to drift through the horse latitudes of the pre-Labor Day week on Wednesday, details emerged on Seminis Inc.'s $250 million credit facility. Meanwhile the secondary market was reported by sources to be adrift under empty sails.

The market thus configured, one investor took a minute to consider what the post-Labor Day environment might portend for the universe of leveraged loans.

"We've heard from at least one dealer on the bank loan side that they have nothing much in the pipeline until at least October," the investor commented. "That is a concern to me.

"You usually get the big guys coming back after Labor Day weekend ready to make big decisions and to tell the junior guys what mistakes they made during the last two weeks of August.

"On the good side, the economy is turning around," the source added. "That probably increases the LBO demand. That will be very good for bank loans.

"And as the months go on we get closer to the point where interest rates actually start to rise, regardless of what the Fed does. And the focus of the market will be on stuff to protect against that. Bank loans will do well in that environment.

"But I think September be pretty dull."

This source also said that the economic numbers that were reported through the summer should be supportive of relative strength in the syndicated loan market.

"The numbers have been consistently good," the source said, "consistently surprising on the upside. The bulls out there have gotten almost nothing but happiness lately.

"Today Bank of America said that underneath the surface maybe employment would chop a little weaker. But every thing else has been good enough that if you believe in the recovery story you are getting plenty of supporting data."

One X-factor, said this investor, is interest rates: will the Federal Reserve truly keep its finger in the dike?

"Most people, I think, are starting to say that the risk is on the upside, with regard to interest rates," the source said. "For the last month and a half people have been eyeing the Fed nervously, wondering if all that money supply and the Fed swearing that they are not going to raise the rates for a long time, if that might get them behind the curve.

"In the old days the Fed used to get behind the curve, before they were geniuses and got it right all the time.

"It has been a long time since the bond guys started saying, 'We know something that the Fed doesn't.' Over the past couple of months, however, you get the impression that people thing the Fed might start letting itself get behind the curve.

"I suspect they won't really do that. Supposedly Greenspan's favorite thing is the unemployment rate. And that may be the last indicator to go up; he's got some cover there. But meanwhile you're getting some momentum.

"And the capex cycle for the big companies in this country tends to get set in a bunching process that happens from October through November. If everything looks good in that period the capex budgets should get set fairly well for 2004. So with things starting to look good I think the basis for a solid 2004 is being set up."

This source also noted that one recent trend in the market is investor "pushback" against the recent spate of repricing deals.

"That was a total wave over the summer and now there are a couple that have been pulled off the table. So I like that trend."

Another market source concurred with this color.

"The momentum has certainly slowed," said this official, with regard to repricing loans. "You're seeing some pushback and some are being pulled altogether.

"People don't seem to be hungry for the opportunistic refinancing of a deal that was done six weeks ago. They want a refi deal that actually reflects improvement in the company, instead of one that merely reflects movement of the market.

"Repricings are meeting with resistance. They are getting done but not to the same degree. Libor [plus] 225-250 [basis points] seems to be the floor."

However, unlike the investor quoted above, this official saw, if not a banquet, at least a steady sustaining diet of deals in the post-Labor Day environment.

"My pipeline is picking up," said the official. "We have things that start popping next week and run all the way through Christmas in terms of things in the pipeline that look fairly real. None of them are earth-shaking deals but it's a nice flow.

"We're also seeing some European guys looking at the U.S. market; they seem like they want to tap it. So there are some M&A deals, some refis, and some European names coming to the U.S. term B market."

Among the scant morsels of hard news that the market produced during Wednesday's session, Prospect News learned that the bank meeting is set for Sept. 4 for Seminis' $250 million credit facility, a deal that will be led by Citigroup.

The loan is structured to include a $60 million revolver and a $190 million term loan, the source said, adding that maturity and pricing details were not available.

The Oxnard, Calif.-based vegetable and fruit seed company also announced that it will bring a minimum of $175 million of high-yield bonds. The bond deal will be led by Citigroup and Harris Nesbitt, according to sources who added that timing remains to be determined.

Proceeds will be used to fund the company's acquisition by Savia, SA de CV.

In follow-up news, late Tuesday Alaska Communications Systems Holdings, Inc. said it closed on its new $250 million bank credit facility consisting of a $200 million term loan at Libor plus 300 basis points and a $50 million revolver at Libor plus 275 basis points.

The Alaska-based telecom is using proceeds to repay the existing credit facility, extending the first significant debt maturities from 2006 to 2009.

The lead bank was JPMorgan.

Alaska Communications also recently priced $182 million of 9 7/8% eight-year senior notes to yield 10½%.

Also Building Materials Holding Corp. announced Wednesday that it completed the refinancing of its existing $300 million senior secured credit facility which was due in December 2004.

The San Francisco distributor of building materials and services said the new facility is similar to the existing line of credit.

It includes a $125 million seven year term loan B at Libor plus 325 basis points and a $175 million five year revolver at Libor plus 250 basis points.

Wells Fargo Bank acted as administrative agent for the financing and was co-lead arranger with GE Capital Corp. US Bank was the syndication agent and Union Bank of California was the documentation agent.

The release also noted that the transaction was oversubscribed and a total of 14 banks and 10 institutional lenders participated in the financing.

"We are pleased with the refinancing of our credit facility and the continued confidence shown in BMHC by our financial partners," said Robert E. Mellor, chairman, president and CEO. "The new credit facility provides longer-term credit commitments, while allowing us to take advantage of historically low interest rates. We continue to maintain a strong capital structure and prudently manage our balance sheet as we grow our construction services business and pursue strategic acquisitions, which furthers our growth strategy."

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