$10 billion in the book for UAL exit deal; slow pace of mega-deal allocations said to lift secondary

By Paul A. Harris

St. Louis, Jan. 19 - As the billion dollar-plus mega-deals continued to move through the market, sources reported active trading in the secondary market, with levels remaining firm.

Some of those sources reported that the order books for the mega-deals are bursting with names.

One market participant said Thursday that there are $10 billion of commitments for Chicago-based air carrier UAL Corp.'s $3 billion six-year exit facility (B1/B+) via JP Morgan and Citigroup.

The deal features a $300 million revolver and a $2.7 billion term loan, both at Libor plus 450 basis points.

Meanwhile in the sub-$1 billion category, big demand for AMC Entertainment Inc.'s $850 million senior secured credit facility (Ba3/B+/BB) via Citigroup, JP Morgan and Credit Suisse was heard to have driven some loan investors into the junk bond market on Thursday.

Late in the day the Kansas City, Mo., movie theater chain priced a $325 million issue of 10-year senior subordinated notes (B3/CCC+/CCC+) at par on Thursday to yield 11%, at the wide end of the upwardly revised 10¾% to 11% price talk. Earlier the notes had been talked to yield between 10½% to 10¾%.

A junk market source said that people who didn't get the bank loans were "rolling out to the bond deal."

Meanwhile an investor who focuses on both the leveraged loan market and the high-yield market said Thursday that the big credit facilities now in the primary market are all going well.

"Some people are frustrated because they made their commitments to the big deals two weeks ago, or longer, and the allocations are taking their own sweet time," the investor added.

"Traders are theorizing that that is why the secondary is being bid up right now."

Firmness in the secondary

Although the traders who spoke to Prospect News on Thursday were reticent to bear out the investor's cause-and-effect color, i.e. that a glacial pace of allocations is causing prices to rise in the secondary, they did concede that there is unmistakably a bid in the market.

One simply marked the market "firm in pretty active trading."

Another said that loans in the secondary were firm across the board, but added that nothing "extremely aggressive" was seen during the session.

This source had the Neiman Marcus Group term loan spotted at 101 bid, 101.50 offered, up an eighth late in the afternoon.

The trader also had the loan paper of Charter Communications Corp. at 100.50 bid, 100.75 offered, up a quarter.

Eyeing the after-market

With sources roundabout the market reporting that order books on big deals from UAL, AMC Entertainment, AmeriTrade, NRG Energy, Georgia-Pacific and others are oversubscribed Prospect News - reasoning that high demand could prompt borrowers to attempt to ratchet down the coupon - asked an investor why there is not more news of downward price-flexing?

The investor responded that demand is still hot and downward price flexes are still occurring.

"But we're not quite at the rabid price-flexing levels we were seeing six or eight months ago, where every deal got pushed and pushed," the source added.

The reason, said the investor, has to do with the massive sizes of issuance currently in the market.

"When you try to sell $2 billion or $3 billion or $4 billion of something you want it to trade okay," the investor said.

"The [lead arrangers] know everybody is going to be in the deal, and so they tend not to push the pricing as tight as it can possibly be."

This investor said that a cautionary lesson might have been taken from Tupperware's $975 million credit facility that closed early in December 2005. The company priced its $775 million term loan (Ba2/BB) at a snug Libor plus 150 basis points.

"It was a gigantic high-quality deal that just stayed at par," the investor asserted, adding that when issuers push too hard on pricing "the bid moves to slightly below par and the offer hangs slightly above par.

"There is a certain buyer out there who thinks that every deal is going to go to 101," the source added. "And as soon as it doesn't go to 101 they sell it.

"When you sell something like that and everybody already owns some because it's a big deal, the bid tends to drop a little and everybody is unhappy."

Primary treads water, Babcock breaks

As the primary waits for the mega-deals to allocate, sources seemed hard-pressed to find much hot-off-the-presses news to share on Thursday.

Well after the close an informed source emailed Prospect News with notification that the Babcock & Wilcox Co. $650 million exit financing credit facility (B1/B+) had allocated and broken for trading. The source had no secondary levels to report, however.

The deal, led by Credit Suisse, JP Morgan, Wachovia and Scotia, has a $200 million five-year revolver at Libor plus 300 basis points, with a 50 basis points commitment fee, a $200 million six-year pre-funded letter-of-credit facility at Libor plus 275 basis points, and a $250 million six-year delayed-draw term loan talked at Libor plus 300 basis points.

Cooper-Standard, Linens plan

Elsewhere Cooper-Standard Automotive held its bank meeting Thursday, announcing pricing on its $215 million term loan D of Libor plus 275 basis points, with a 101 soft call after one year.

Deutsche Bank and Lehman Brothers are leading the B+ acquisition deal.

Linens 'n Things Inc. also held a bank meeting Thursday for its $600 million five-year senior secured asset-backed revolver.

Initial price talk is Libor plus 150 basis points, with a 50 basis points undrawn fee.

UBS is the sole lead arranger for the LBO financing.

And subsidiaries of International Specialty Products Inc. announced in a Thursday press release that it plans to enter into a new senior secured credit facility.

The amount will be sufficient to fund, among other things, the tender for International Specialty Holdings Inc.'s $200 million of 10 5/8% senior secured notes due 2009 and Chemco Purchasers' $405 million of 10¼% senior subordinated notes due 2011, the release added.

The tender offer expires Feb. 16, 2006. UBS Securities and Bear Stearns are the dealer managers.

The company did not return a Thursday telephone call from Prospect News. However later in the day Moody's assigned its Ba3 rating a proposed $1.15 billion of guaranteed senior secured credit facilities of ISP Chemco, Inc.

Moody's stated that the proposed facilities include a new $200 million revolver due 2012 and a new $950 million term loan due 2013.

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