McJunkin breaks; Spectrum Brands up on paydown; Airlines, Autos fall some more; O'Reilly sees interest

By Sara Rosenberg

New York, May 21 - McJunkin Red Man Corp.'s holdco term loan priced and freed up for trading on Wednesday and Spectrum Brands Inc.'s term loan B rallied after the company announced plans for an asset sale, the proceeds of which would be used to repay debt.

Also in the secondary, airlines, such as Delta Air Lines Inc., Northwest Airlines Corp., UAL Corp. and American Airlines Inc., were once again weaker as oil prices continued to rise, and General Motors Corp. and Ford Motor Co. softened as well.

In other news, syndication on O'Reilly Automotive Inc.'s ABL facility is going well so far and Kleen Energy Systems LLC's credit facility has been extremely well received by the market, creating the anticipation that the deal will close at initial terms.

McJunkin Red Man finalized the original issue discount on its $450 million holdco term loan (B3/B-) and then broke the deal for trading, according to sources.

The discount firmed at 87, sources said. Previously, there was no official guidance out on the discount price, but talk was that investors were throwing in orders in the mid-to-high 80s context.

Pricing on the term loan is Libor plus 325 basis points.

The loan hit the secondary market with levels in the 89½ bid, 90½ offered area and then inched up to 90 bid, 91 offered, where it closed out the day, sources added.

Goldman Sachs and Lehman are the lead banks on the deal, with Goldman the left lead.

In addition to the term loan, the company is planning on getting a $50 million upsizing to its ABL revolver (Baa3/BB) that would bring the total revolver size to $700 million.

The revolver add-on is priced in line with the company's existing revolver, which is at Libor plus 150 bps.

Proceeds from the term loan, along with a $25 million revolver draw, are being used to fund a $475 million dividend to Goldman Sachs Partners.

McJunkin Red Man is a Charleston, W.Va., distributor of pipe, valves and fittings.

Spectrum gains with paydown news

Spectrum Brands' term loan B jumped up by a couple of points in trading on news that some bank debt will be repaid using proceeds from the sale of the company's global pet business, according to a trader.

The term loan B was quoted at 95¼ bid, 96¼ offered, up from 91¾ bid, 92¾ offered on Tuesday, the trader said.

On Wednesday morning, Spectrum announced that it has reached an agreement to sell United Pet Group to Salton Inc. for $692.5 million in cash, plus additional consideration in the form of $98 million of Spectrum's variable-rate toggle senior subordinated notes due 2013 and $124.5 million of Spectrum's senior subordinated notes due Feb. 1, 2015 (in each case taking into account the principal amount thereof and any accrued interest).

Proceeds from the sale will be used by Spectrum to repay a portion of its ABL credit facility borrowings and some other senior bank debt.

Spectrum said that it expects the transaction to decrease its total leverage ratio to about 7.8 on a pro forma basis from about 8.5 as of March 30, lower its senior leverage ratio to about 4.0 on a pro forma basis from about 5.0 as of March 30, and reduce annualized cash interest expense by about $70 million.

Following the announcement, Standard & Poor's said it placed Spectrum's CCC+ long-term corporate credit rating on CreditWatch with positive implications.

The transaction is expected to close by the end of August, subject to approval by Spectrum Brands' senior lenders, Hart-Scott-Rodino approval and other customary closing conditions. It is not contingent on any financing requirement.

In a separate news release, Salton said that it will fund the acquisition of Spectrum's pet business, which markets and manufactures pet supplies for fish, dogs, cats, birds and other small domestic animals, using a $325 million credit facility and equity provided by Harbinger Capital Partners, the controlling stockholder of Salton.

As part of the investment, Harbinger Capital Partners will contribute the Spectrum notes to Salton.

Goldman, Sachs & Co. is acting as Spectrum's financial advisor, and Credit Suisse and Centerview Partners LLC are acting as Salton's financial advisors.

Spectrum Brands is an Atlanta-based consumer products company and a supplier of consumer batteries, lawn and garden care products, specialty pet supplies, shaving and grooming products, household insect control products, personal care products and portable lighting. Salton is a Miramar, Fla.-based marketer and distributor of small household appliances.

Oil pushes airline, autos down

The airline sector and some auto names headed lower in trading during the session as the price of oil increased to around $134 a barrel, according to a trader.

Atlanta-based Delta Air Lines saw its first-lien term loan quoted at 86¼ bid, 87¼ offered, down from 86½ bid, 88 offered, the trader said.

Eagan, Minn.-based Northwest Airlines saw its term loan quoted at 80½ bid, 82 offered, down from 81½ bid, 83 offered.

Chicago-based UAL saw its term loan quoted at 79 bid, 80½ offered, down from 80 bid, 81 offered, the trader continues.

And, Fort Worth, Texas-based American Airlines saw its term loan quoted at 92½ bid, 93½ offered, down from 93 bid, 94½ offered.

"Oil was up $5 today, so entire airline sector got crushed. Oil, which accounts for 50% of their expenses is sort of skyrocketing through the roof," the trader remarked.

On Wednesday, American Airlines' parent company, AMR Corp., announced significant reductions to its 2008 domestic flight schedule, including a fourth-quarter mainline domestic capacity reduction of 11% to 12% from the previous year. According to its April 16 guidance, the company previously expected domestic mainline capacity in the fourth quarter to decline by 4.6% compared to the last year.

The company also outlined plans to retire at least 75 mainline and regional aircraft and unveiled several revenue growth initiatives, in order to respond to record fuel prices, growing concerns about the economy and a difficult competitive environment.

American Airlines has already been using fare increases and fuel surcharges to improve revenues. However, under a new initiative announced Wednesday, the company introduced a $15 fee for the first checked bag, given the increasing costs of transporting checked baggage. Also, fees for certain other services, ranging from reservation service fees to pet and oversized bag fees, were increased.

The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.

"The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy," said Gerard Arpey, AMR's chairman and chief executive officer, in a news release.

"We must work to overcome our near-term challenges and to secure our company's long-term future for the benefit of our shareholders, customers and employees. We must find ways to cover the cost of providing our services so that we can remain viable and have the resources to reinvest in our company for the future. Those goals are central to the actions we are outlining today," Arprey added in the release.

Meanwhile, in the auto sector, General Motors, a Detroit-based automotive company, saw its term loan quoted at 91 bid, 92 offered, down from 91¼ bid, 92¼ offered, the trader said.

And, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 89 1/8 bid, 89 5/8 offered, down from 89¼ bid, 89¾ offered.

"It all has to do with oil. People don't buy cars when they have to pay $5 at the pump," the trader explained.

Aside from airlines and autos, the cash market in general wasn't too bad on Wednesday with levels anywhere from unchanged to down an eighth of a point, on light volume.

The index faired a little worse as LCDX 10 levels came in to 99.25 bid, 99.35 offered from 99.40 bid, 99.50 offered on Tuesday, the trader added.

O'Reilly well received

Moving to the primary market, O'Reilly Automotive's $1.2 billion asset-based revolving credit facility is moving along nicely in terms of syndication, according to a market source.

The deal has a pre-launch to agents that went over very successfully and feedback from the retail launch, which just took place late last week, has been good, the source said.

"Fantastic credit for the ABL space," the source added.

The facility consists of a $125 million first-in, last out tranche that is talked at Libor plus 375 bps and a $1.075 billion conforming borrowing base tranche that is talked at Libor plus 250 bps.

Bank of America and Lehman Brothers are the lead banks on the deal, with Bank of America the left lead.

Proceeds from the revolver will be used to refinance existing debt, fund the cash portion of the acquisition of CSK Auto Corp. and provide liquidity.

Under the transaction agreement, O'Reilly will acquire all of the outstanding common shares of Phoenix-based CSK in an exchange offer in a transaction valued at about $1 billion, including about $500 million of debt.

CSK shareholders will receive $12.00 in value per share, including $11.00 of O'Reilly common stock plus $1.00 in cash.

Following the close of the transaction, Springfield, Mo.-based O'Reilly will be the third largest national auto parts retailer with about 3,200 stores located across the United States. The combined company had pro forma revenues of $4.4 billion in 2007.

Kleen Energy going strong

Kleen Energy Systems $1.015 billion credit facility is expected to wrap up at initial terms being that it had been met with a very positive reception from the start and that momentum, so far, has continued throughout the syndication process, according to a market source.

The facility consists of a $250 million revolver, a $450 million construction term loan A (//BBB-) and a $315 million construction term loan B (//BBB-).

The revolver and the term loan A are both priced at Libor plus 175 bps, and the term loan B is priced at Libor plus 250 bps, with a 3.25% Libor floor.

Both the term loan A and the term loan B have fixed mandatory amortization schedules.

The term loan B has call protection of 103 for four years, then 102 in year five and 101 in year six.

The revolver and term loan A mature eight years following completion of the project and the term loan B matures 14 years following completion of the project.

Investors are being offered the revolver, the term loan A and the term loan B as a strip, and upfront fees are based on commitment size.

Goldman Sachs is the bookrunner and joint lead arranger on the deal. Other joint lead arrangers include BNP Paribas, Dexia, HSH Nord Bank, ING, Natixis, Scotia Capital, Union Bank of California and WestLB.

Proceeds from the credit facility will be used to help fund the construction of a 620 megawatt power plant in Connecticut.

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