New deals anticipated to flex down, companies try to refinance, reprice existing loans in hot market

By Sara Rosenberg

New York, July 9 - Due to the overwhelming demand for new issues, the expectation is that many will reverse flex before the syndication process is done. Furthermore, with these strong market technicals some issuers are revisiting the market in an effort to reprice or refinance existing loans.

Some deals that may end up seeing pricing changes include Jostens Inc., Reddy Ice Group Inc. and Oriental Trading Co., according to a market professional.

Jostens came to market this past Tuesday with a $650 million credit facility, consisting of a $125 million five-year revolver with an interest rate of Libor plus 275 basis points and a $525 million seven-year term loan B with an interest rate of Libor plus 300 basis points. Credit Suisse First Boston and Deutsche Bank are leading the deal.

"I'm sure it will come in to at least Libor plus 275. Before the bank meeting, they had about $270 million in orders for the B loan. I'm sure it's well oversubscribed by now. They're not adding all that much bank debt. They're not overlevering it. They have minimal capex requirements so they generate a lot of free cash flow. We committed," the professional said.

Proceeds will be used to help fund the leveraged buyout of Jostens by DLJ Merchant Banking Partners III, LP and affiliated funds managed by CSFB Private Equity for approximately $48 per common share in cash. Jostens is currently 88% owned by Investcorp, a global investment group, its co-investors and MidOcean Partners. The transaction is expected to close by Sept. 30, 2003.

Jostens is a Minneapolis provider of school-related affinity products.

Reddy Ice launched a proposed $170 million credit facility (B1/B+) on Tuesday, consisting of a $35 million revolver and a $135 million term loan B. Credit Suisse First Boston, Bear Stearns and CIBC are the lead banks on the deal.

Price talk on the institutional and the pro rata tranche was Libor plus 400 basis points but that proposed spread will be revisited by the syndicate due to strong market technicals, a source close to the deal previously told Prospect News.

"They have like $700 million committed for a $135 million B loan. My guess is that it goes in to at least 350 over if not even 325," the professional said.

Proceeds will be used to help fund the leveraged buyout of the Dallas packaged ice company by Trimaran Capital Partners and Bear Stearns Merchant Banking.

Oriental Trading's $250 million six-year term loan B had already received $325 million in orders by Tuesday afternoon and the syndicate anticipated receiving even more commitments prior to Wednesday's launch. Furthermore, at least half of the $40 million six-year revolver is spoken for by the lead arrangers and a few other banks.

The term loan B is talked at Libor plus 350 basis points and the revolver is talked at Libor plus 300 basis points. But once again, due to this incredibly strong demand, many speculate that spreads will tighten prior to closing, the professional explained.

Credit Suisse First Boston and BNP Paribas are leading the deal.

The Omaha, Neb. direct marketer of novelties and toys is obtaining the facility as part of a recapitalization effort.

Another example is the Language Line deal, which underwent some changes on Wednesday including an increase in size a reverse flex, according to a syndicate source. Wachovia, TD and Fleet are leading the deal that will be used by the equity sponsor to take out some dividends.

The 51/2-year term loan B is now sized at $80 million, compared to an original size of $75 million, and pricing is now Libor plus 375 basis points, as opposed to original pricing of Libor plus 400 basis points.

"It's expected to close in a few weeks. We expect to finalize everything by early next week and then it should close seven to 10 days after that," the syndicate source said.

Language Line is a Monterey, Calif. provider of over-the-phone interpretation services.

Meanwhile, AES Corp. held a call on Wednesday regarding a proposed $1 billion credit facility, which would be used to refinance existing bank debt, some of which is priced as high as Libor plus 650 basis points, according to market sources.

The Arlington, Va. power company's facility consists of a $750 million five-year term loan B with an interest rate of Libor plus 375 basis points and a $250 million four-year revolver with an interest rate of Libor plus 375 basis points.

Citigroup, Bank of America and Deutsche are the lead banks on the term loan. Citigroup and Union Bank of California are the lead banks on the revolver.

And, not too long ago, TRW Automotive Inc. was reported to have come to market with a repricing of its $1.1 billion term loan B to Libor plus 300 basis points from Libor plus 400 basis points. JPMorgan is the lead bank on the loan. The original loan was brought to market at the start of the year and closed in March.

TRW is a Livonia, Mich. diversified supplier of automotive systems, modules and components.

Market talk is that Commonwealth Brands Inc. is considering coming to market with a repricing of its term loan, which currently carries an interest rate of Libor plus 400 basis points, according to one fund manager. However, no actual repricing deal has launched yet as the proposal is still in the early stages during which the syndicate is making some calls to feel out lender attitude towards the proposition, the fund manager added.

"We would view it very negatively and I would find it difficult to recommend maintaining or position. But, truth is, in this market it would probably go fine if they decided to do it. My guess is they'll try it at 350 over and see how it goes. If it goes really well they'd probably go to 325. There's like $400 to $500 million of bank debt so it's pretty substantial. This would be the third time in like three years that the company repriced," the fund manager said.

The Bowling Green, Ky. cigarette company obtained the originally sized $600 million term loan B in August 2002, a time in which market technicals were very different from today. During that period, investors had enough clout to be able to tell arrangers and issuers what a deal structure needed to look like in order for them to participate in a transaction. And, since issuers needed the liquidity, investor demands were for the most part met. For example, F&W Publications accelerated amortization on its transaction due to investor pressure, Oriental Trading Corp. made its excess cash flow recapture covenant stricter in its deal and Headwaters Inc., Dade Behring, Commonwealth Brands, NCI, Petco and Hollinger International Publishing made pricing more attractive and added call protections and/or improved original issue discounts in order to get their deals done.

Also in August 2002, Commonwealth Brands closed on a $17 million revolver with an interest rate of Libor plus 400 basis points as part of its refinancing.

Deutsche Bank is the lead bank on the company's credit facility.

In the secondary, Tenet Healthcare Corp.'s bank debt dropped by about two points on Wednesday to the high 80s from the low 90s following news of a formal SEC investigation, according to a trader.

The company announced that on Tuesday afternoon it received a civil subpoena for documents from the Securities and Exchange Commission, indicating that the agency is conducting a formal investigation. The subpoena seeks documents since May 31, 1997, related to Medicare outlier payments, stop-loss payments and increases in gross charges, as well as the financial and other disclosures.

This action follows disclosures by the company last November that the SEC had initiated an informal inquiry.

Tenet Healthcare is a Santa Barbara, Calif. owner and operator of acute care hospitals.

In follow-up news, Wackenhut Corrections Corp. closed on its new $150 million credit facility (Ba3/ BB-), consisting of a $100 million six-year term loan B with an interest rate of Libor plus 300 basis points and a $50 million five-year revolver with an interest rate of Libor plus 300 basis points.

The company used approximately $100 million of borrowings under the facility combined with net proceeds from a $150 million senior unsecured notes offering and approximately $16 million in cash on hand to repurchase 12 million shares of its common stock from Group 4 Falck A/S, its former 57% shareholder, and to refinance amounts outstanding under its previous senior secured credit facility.

BNP Paribas was the lead bank on the credit facility for the Palm Beach Gardens, Fla. correctional and detention facilities company.

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