ILC Industries, Wellman first lien upsized, second lien downsized, ILC reverse flexes

By Sara Rosenberg

New York, Feb. 4 - ILC Industries Inc.'s term loans underwent some modifications including changes in size as well as pricing. And, pricing and structure on Wellman Inc.'s upsized $625 million credit facility firmed up with the term loans undergoing some size changes and breaking for trading late Tuesday.

ILC Industries' first lien term loan was increased to $115 million from $110 million, according to a source close to the deal. Furthermore, the interest rate was reverse flexed to Libor plus 300 basis points from initial pricing of Libor plus 325 basis points. And, the tranche now contains a pricing stepdown to Libor plus 275 basis points if total leverage falls below 3.5 times.

The second lien term loan was reduced in size by $5 million to $60 million, the source continued. However, pricing on this tranche was also reverse flexed, this time to Libor plus 575 basis points from initial pricing of Libor plus 600 basis points.

Spreads over Libor were reduced on both term loans since the deal, like so many others before it, was heavily oversubscribed because of strong investor demand.

The credit facility also contains a $17.5 million revolver with an interest rate of Libor plus 300 basis points.

UBS is the sole lead bank the deal that will be used to repay mezzanine debt and fund a small dividend payment.

ILC is a Bohemia, N.Y., defense, aerospace and industrial products provider.

Wellman's five-year first lien term loan (B1/B+) is now sized at $185 million, up from an original size of $125 million. This tranche is priced with an interest rate of Libor plus 400 basis points, according to a market source.

Meanwhile, the six-year second lien term loan (B2/B-) was downsized to $265 million from $300 million. Pricing on this tranche has been set at Libor plus 675 basis points, the source said. There is a 2% Libor floor as well.

Previously there was no price talk on the term loans since the syndicate was trying to get a read on investor sentiment due to this first lien, second lien structure.

The first lien broke for trading late Tuesday at 101¼ bid, 101¾ offered, according to a trader, and opened on Wednesday at 102 bid. According, to a second trader, the first lien loan was seen north of 102 by the end of the day.

The second lien term loan, which was issued at 98, broke for trading at 98 bid, 98½ offered late Tuesday and opened on Wednesday at 98¼ bid, 98¾ offered, according to a trader.

S&P downgrades Wellman

In response to the size changes of the term loans, Standard & Poor's downgraded its rating on the first lien term loan to B+ from BB- and revised the recovery rating on the tranche to 3 from 1, indicating that the first-lien term loan lenders can still expect meaningful recovery of 50% to 80% of principal in the event of default.

"The rating on the proposed $185 million first-lien term loan, which has been increased in size from $125 million, reflects the lenders' recovery prospects in the event of a default, after a review of Wellman's revised financing plan," said S&P credit analyst Franco DiMartino, in the rating release.

The facility also contains a $175 million asset-based revolver (B1/BB-) priced with an interest rate of Libor plus 250 basis points that is secured by a first-priority lien on the receivables, inventory and the related intangible assets.

Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. acted as joint bookrunners on the term loans, and Deutsche Bank Securities Inc. acted as sole bookrunner on the revolver.

Proceeds will be used to refinance the company's revolver, private placement notes and financial instruments, and to repay a $150 million sale and leaseback obligation entered into in 1999, a $28 million accounts receivable securitization program and an $87 million prepayment of a raw material contract.

Closing on the facility is expected to take place on Feb. 10.

"We are very pleased with these new financing facilities, which are expected to provide approximately $100 million of available liquidity at closing. In addition to being able to upsize the amount of the transaction, these facilities provide the company with no significant debt maturities until 2009," said Tom Duff, chief executive officer, in a news release.

Wellman is a Shrewsbury, N.J., manufacturer and marketer of polyethylene terephthalate packaging resins and high-quality polyester products.

CCFC II revolver below par

Calpine Corp.'s Calpine Construction Finance Co. II LLC revolver remained at 98½ bid, 99 offered where it moved to late last week on refinancing speculation despite solid news from the company that a refinancing plan is in action. The paper was unable to reach the usual par levels that a refinancing announcement tends to incite as investors remained cautious on the company's ability to complete its proposed transaction, according to a trader.

"The market is very sloppy. What happens if they don't get it done? Then where does it trade to? You'll definitely lose more than one point," the trader said.

On Wednesday morning, the San Jose, Calif., power company revealed that its wholly owned subsidiary, Calpine Generating Co. LLC (previously CCFC II) would be coming to market with about $1.3 billion of non-recourse first priority secured institutional term loans and about $1 billion non-recourse second priority secured notes.

The term loans and the bank debt would be used to refinance amounts outstanding under the $2.5 billion CCFC II credit facility that matures in November, according to a company news release. Currently there is about $2.3 billion in outstanding debt under the CCFC II facility including letters of credit (see story elsewhere in this issue).

However, Allegheny Energy Inc.'s bank debt did wrap itself around the par area as the company filed a U-1/A document with the Securities and Exchange Commission that essentially convinced investors that a refinancing of existing bank debt will occur soon, according to a trader.

The Hagerstown, Md., energy company's paper was quoted at 99 7/8 bid, par 1/8 offered.

In the filing the company revealed that it was looking to issue up to $1.6 billion of debt so as to repay and refinance all of the bank debt that was restructured in February 2003.

And, late in the day, it was announced that SEC approval was granted on the proposed debt issuances (see story elsewhere in this issue).

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