Warner Music rises on expected additional paydown; GM, Ford soften with selling pressure

By Sara Rosenberg

New York, May 19 - Warner Music Group Corp.'s term loan headed higher during Tuesday's trading session as the company announced plans to repay some term loan debt, which would be in addition to the paydown that investors were already anticipating as part of a proposed amendment.

Also in the secondary, General Motors Corp. and Ford Motor Co. came in a little as there appeared to be some sellers with not a lot of buying interest, while Chrysler Financial Services LLC was steady to slightly weaker, depending on who was asked.

Warner Music trades up

Warner Music's term loan gained some ground in trading following news that the company will repay a portion of the debt with proceeds from a bond offering, according to a trader.

The term loan was quoted at 98¾ bid, 99¼ offered, up from previous levels of 96½ bid, 97½ offered, the trader said.

On Monday night, the company announced that it will offer $500 million of senior secured notes due 2016. Then on Tuesday, it was heard that the company upsized the offering to $1.1 billion.

Completion of the offering is conditioned upon approval from the company's credit facility lenders of an amendment that would allow for the incurrence of the notes.

The amendment would also allow the notes to be secured equally and ratably with the same collateral that would secure the remaining term loans.

Warner to see another paydown

In connection with Warner Music's proposed credit facility amendment, the company would voluntarily prepay $300 million of its term loans using cash on hand, which would be in addition to the repayment that would be made with the bond offering proceeds.

Furthermore, the amendment would reduce the amount of revolving credit facility commitments to $150 million from $250 million bonds and fix financial maintenance covenants at set levels.

As was previously reported, the company's main goal in seeking the amendment is to extend the maturity date of the term loans to January 2014 from February 2011.

In return for extending their term loan commitments, lenders would get higher pricing and a Libor floor on the extended debt.

The maturity date and pricing on term loans held by lenders that do not consent to the extension would remain unchanged.

The amendment and extension are not conditioned on the notes offering and the company intends to proceed with the proposal even if the notes offering is not completed.

Warner interest expense to increase

Warner Music said in an 8-K filed with the Securities and Exchange Commission on Tuesday that even if it pays down term loan debt with the amendment and then further reduces it with the notes offering proceeds, annual interest expense would be expected to increase despite the overall lower debt level.

An example given by the company - before the bond upsizing was announced - was that for the 12 months ended March 31, interest expense would have been about $156 million, compared to actual interest expense of $148 million, after giving effect to any such refinancing, assuming a weighted average interest rate of 7.89% per annum on remaining senior secured term loans and notes, collectively, and actual rates on existing senior subordinated notes.

The company said that a 0.25% change in such assumed weighted average rate would change interest expense by about $4 million.

The weighted average interest rate of 7.89% assumes that all senior secured term loan lenders agree to extend the maturity of the term loans, which would mean that all of the term loans carry the higher pricing that is being offered with the amendment.

Warner Music is a New York-based music content company.

GM, Ford inch lower

General Motors and Ford both saw their term loans weaken a little in light volume on Tuesday, possibly on some profit taking after last week's big rally in the names, according to traders.

General Motors, a Detroit-based automotive company, saw its term loan quoted by one at 68 bid, 69 ½ offered, down from 69¼ bid, 70¾ offered, and by a second trader at 69½ bid, 70½ offered, down from 70 bid, 71½ offered.

And, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted by one trader at 64½ bid, 65½ offered, down from 65 bid, 66 offered, and by a second trader at 64 bid, 64¾ offered, down from 65 bid, 66 offered.

Meanwhile, Chrysler Financial, a provider of financial services for vehicles, which also experienced a run-up last week, saw its first-lien term loan quoted by one trader as flat on the day at 84½ bid, 85½ offered. However, a second trader said that the paper was down with levels of 84¼ bid, 85¼ offered, compared to 85 bid, 85½ offered on Monday.

GM softening unexpected

According to the trader, the retreat in General Motors' term loan levels is somewhat surprising given that there was a news story out on Tuesday that made mention of the company's bank debt possibly getting repaid at par by the government in a bankruptcy scenario.

Speculation over this potential par paydown had first surfaced last week, which is why the rally in the name started to begin with and probably pushed the other auto names higher with it. Now, with this news story, the trader said he thought that levels would at least have held steady.

"Still have sellers coming in. Not sure why. Hasn't really traded, [but] a lot of selling interest. Maybe it's buy the rumors, sell the story," the trader added.

In April, General Motors launched offerings to exchange - for each $1,000 principal amount of notes - 225 million shares of its common stock for a total of $27 billion of its unsecured public notes.

Around that time, the company said that if, prior to June 1, it does not receive enough tenders of notes to consummate the exchange offers, it expects to seek relief under the U.S. Bankruptcy Code, with a sale being the most likely outcome.

LCDX strengthens

In more secondary happenings, the LCDX 12 index was about a point higher on the day despite stocks being a mixed bag, according to a trader.

The index was quoted at 82.50 bid, 82.80 offered, up from 81.55 bid, 81.85 offered, the trader said.

As for stocks, Nasdaq closed up 2.18 points, or 0.13%, Dow Jones Industrial Average closed down 29.23 points, or 0.34%, S&P 500 closed down 1.58 points, or 0.17%, and NYSE closed up 6.35 points, or 0.11%.

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