Skilled Healthcare term loan slides as mistrial motion denied; Wyle tweaks pricing grid

By Sara Rosenberg

New York, Aug. 30 - Skilled Healthcare Group Inc.'s term loan headed lower during Monday's trading session on the back of news that the company's motion for mistrial in the case over a complaint that was filed in 2006 was denied by the court.

Over in the primary market, Wyle Inc. revised the pricing grid on its add-on term loan and existing term loan, basically moving the low end of the grid higher, and the expectation is that the new loan will allocate shortly.

Skilled Healthcare slides

Skilled Healthcare's term loan dropped in trading following the company's announcement that the Court of the State of California denied a previously filed motion for mistrial or new trial on grounds of juror misconduct, according to traders.

The term loan was quoted by one trader at 91½ bid, 93½ offered, down from 94½ bid, 95½ offered, and by a second trader at 92½ bid, 94 offered, down from 94 bid, 95 offered.

The ruling involves a case that was filed back in 2006, under which the plaintiffs alleged that certain of the company's California-based facilities were understaffed and misrepresented the quality of care provided in their facilities.

In July of this year, a jury ruled that the company should pay $613 million in statutory damages and $58 million in restitutionary damages to the plaintiffs, and before the punitive damages phase of the trial went on, the parties reached an agreement to enter into mediation to settle the lawsuit.

However, the company then claimed that it found juror misconduct and wanted a mistrial or new trial.

Skilled in settlement talks

Skilled Healthcare said in an 8-K filed with the Securities and Exchange Commission on Monday that settlement discussions in the case are ongoing.

Also, the company is appealing an injunction that the court granted when the mistrial motion was denied.

Under the injunction, the company's skilled nursing facilities are required to provide specified nurse staffing levels, comply with specified state and federal laws governing staffing levels and posting requirements, and provide reports and information to a monitor.

No final judgment has been rendered in the case, and further proceedings with the court are scheduled to begin on Tuesday.

Skilled Healthcare is a Foothill Ranch, Calif.-based health care services company.

Wyle reworks grid

Switching to the primary, Wyle changed the pricing grid on its $195 million term loan add-on (B1/BB) and existing term loan, and is hoping to give out allocations on the new loan on Tuesday, according to a market source.

The grid now calls for pricing of Libor plus 450 basis points if the corporate rating is B2/B and senior leverage is less than 2.85 times, and Libor plus 500 bps if the corporate rating is B2/B and senior leverage is more than 2.85 times.

If the corporate rating is lower than B2/B, pricing is Libor plus 525 bps at less than 2.85 times senior leverage and Libor plus 575 bps at more than 2.85 times senior leverage, the source said.

Previously, the grid called for pricing of Libor plus 400 to 500 bps at B2/B corporate ratings based on leverage, and Libor plus 475 bps to 575 bps at less than B2/B corporate ratings based on leverage.

As a result of the new grid, the lowest pricing on the company's term loan debt is now 50 bps higher than was previously possible.

Wyle pricing unchanged

Despite the modifications to the grid, initial pricing on Wyle's add-on term loan was not affected, with the spread set at Libor plus 575 bps, the source remarked.

Also, as before, the loan provides for a 2% Libor floor and the add-on is being offered at an original issue discount of 981/2. When the original term loan was obtained back in March, it was sold at a discount of 99.

At launch, price talk on the add-on term loan was Libor plus 500 bps, which is where the existing term loan was priced.

Later on, however, Moody's Investors Service downgraded the company's corporate rating to B3 from B2, which resulted in pricing being moved to Libor plus 575 bps on the add-on and the existing loan because of the pricing grid. Standard & Poor's still has a B+ corporate rating for the company.

In addition, during syndication, the size of the add-on term loan was reduced by $10 million from $205 million.

Wyle amendment passes

Along with the new deal, Wyle asked lenders to amend its existing credit facility to revise the accordion so as to permit the term loan add-on, increase the revolver size to $35 million from $25 million and reset financial covenants.

This amendment proposal passed with significant support, the source continued.

Lenders were offered a 50 bps amendment fee.

Barclays Capital and JPMorgan are the lead banks on the add-on and amendment, with Barclays the left lead.

Wyle buying CAS

Proceeds from Wyle's term loan add-on, along with cash on hand and equity from its controlling shareholder, Court Square Capital Partners, will be used to fund the acquisition of CAS Inc. from ITT Corp.

The amount of equity being used was increased to $35 million from $25 million as a result of the term loan add-on downsizing.

Closing of the acquisition is subject to review and approval by regulatory authorities, such as the Federal Trade Commission, and other customary conditions.

Following the transaction, pro forma total leverage will be roughly 5.5 times, and the combined entity will have pro forma 2009 revenues of about $1 billion.

Wyle is an El Segundo, Calif.-based provider of high-tech systems engineering, testing and information technology services. CAS is a Huntsville, Ala.-based provider of systems engineering and technical assistance for of military applications.

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