Adesa pro rata oversubscribed on day of launch, term loan B waiting in wings to hit the primary

By Sara Rosenberg

New York, March 23 - Adesa Inc.'s $350 million of pro rata bank debt that launched via a bank meeting on Tuesday was already oversubscribed by the end of the day, mostly on strong interest from relationship banks. In fact, demand was so good that the company is even considering not launching its $150 million term loan B but rather just settling with an all pro rata credit facility.

"I haven't been at a pro rata meeting like that in five years in terms of level of interest," a source told Prospect News. "There are seven $50 million tickets in and two $25 million tickets for a $350 million pro rata piece. It's already oversubscribed, which is kind of rare. These early commitments were almost in every case [from banks who] had pre-existing relationships with management."

As for the $150 million term loan B, it was not launched on Tuesday primarily because institutional tranches are usually launched closer to the bond deal and the bond deal isn't expected to hit the high-yield market until May, the source explained.

However, since the pro rata went so well, it's possible that the company may opt not to have institutional paper at all. "Having the term B does have some positives. It provides amortization relief, 1% a year, so it's flexibility for the company. [Adesa has time to think] whether or not the benefits of having a term B outweigh the costs," the source said.

The commitment deadline for the pro rata bank debt is on April 15. A decision on the term loan B is not expected to be made before that time.

The pro rata portion of the facility consists of a $150 million five-year revolver with an interest rate of Libor plus 225 basis points and a $200 million five-year term loan A with an interest rate of Libor plus 225 basis points.

Upfront fees on the allocated amount are 5/8 for a $50 million commitment, 50 basis points for a $35 million commitment and 37.5 basis points for a $25 million commitment.

Right now the $500 million credit facility is also expected to contain a $150 million six-year term loan B with an interest rate of Libor plus 250 basis points.

UBS and Merrill Lynch are the joint lead arrangers on the deal, with UBS listed on the left.

Security for the credit facility is expected to a lien on some of assets.

Proceeds from the loan combined with proceeds from a $150 million senior subordinated notes offering and an initial public offering of Adesa's common stock will be used to help support Adesa's spin-off from Allete Inc.

More specifically, Adesa will replace and repay its existing credit facility, pay a $100 million dividend to Allete, repay $200.2 million of outstanding debt owed to unaffiliated third parties and repay all outstanding intercompany debt owed to Allete and its subsidiaries, which totaled $136.1 million as of Dec. 31, 2003.

The IPO is expected to be completed in the second quarter of 2004. After the IPO, Allete will own at least 80% of the equity of Adesa. The company anticipates completing the subsequent spin-off within four months of the IPO, according to an Allete news release.

Adesa is a Carmel, Ind. operator of used vehicle and auto salvage auctions.

Home Interiors term B pricing upped

Home Interiors & Gifts Inc.'s $320 million term loan B was flexed up again, this time with price talk moving to Libor plus 425 basis points from Libor plus 375 basis points, according to a fund manager. Furthermore, the tranche now carries a 1% upfront fee.

The syndicate is going out to accounts with these new terms, however, none of the changes have been put in writing as of yet, the source added.

Last week, the term loan B was flexed up by 50 basis points to Libor plus 375 basis points from Libor plus 325 basis points. An increase in pricing on the institutional tranche had been expected by some market participants as the deal was said to be struggling a little bit on aggressive pricing.

By comparison, Home Interiors' existing term loan is priced with an interest rate of Libor plus 450 basis points.

The $370 million credit facility (B2/B) also contains a $50 million revolver with an interest rate of Libor plus 275 basis points. Investors get 1% for revolver commitments as well.

JPMorgan and Bear Stearns are the lead banks on the deal, with JPMorgan listed on the left.

Proceeds will be used to refinance approximately $169.8 million of existing senior debt, to

repurchase all approximately $139 million or a portion of the company's outstanding convertible preferred stock, for general working capital purposes and to pay transaction fees and expenses.

On a pro forma basis after giving effect to the refinancing and the anticipated use of the proceeds from the refinancing, as of Dec. 31, 2003, the company would have had approximately $474.6 million in total debt, compared to approximately $323.2 million in total debt as of Dec. 31, 2003 on an actual basis.

Home Interiors & Gifts is a Dallas integrated manufacturer and distributor of home decorative accessories.

Prestige also struggling

Home Interiors is not the only deal that has been reported as chugging along slowly in the primary bank market. Prestige Brands' first and second lien term loans, which launched a week ago, still have a ways to go before the books are filled, according to a market source.

"I heard [they have] about $250 million on the $350 million term B and about $25 million or $300 million out of the $100 million they need on the term C," the source said.

"Leverage is higher on Prestige than on Home Interiors. Leverage on Prestige through the first lien is 3½ times, through the second lien 4½ times and total 6½ times. Home Interiors is 3.1 times through senior secured debt and 4½ times total debt. If Home Interiors had to move up to 425 and it's less leverage, then Prestige would have to move up to that area too. I think we'll see it come up to this 400 type of range just on this term B. Four hundred is probably where it would have to move up to just to get people to start talking about it. It's going to depend on all the other investors out there. Using leverage numbers alone it would have to be higher than Home Interiors 425. But maybe the business isn't as skeptical as Home Interiors. Prestige Brands has more brand names, less business risk.

"There hasn't even been talk of a flex up yet but I'm guessing it will need to happen," the source concluded.

Prestige Brands' $350 million term loan B (B1/B) is currently talked at Libor plus 275 basis points and $100 million second lien term loan C (B2/CCC+) is currently talked at Libor plus 475 basis points.

The $500 million credit facility also contains a $50 million revolver (B1/B).

Bank of America and Citigroup are the lead banks on the deal.

Proceeds will be used to help support the previously announced acquisition of Prestige by an affiliate of GTCR Golder Rauner LLC's from MidOcean Partners.

Prestige Brands is a Bonita Springs, Fla. consumer products company.

CACI launch pushed out

CACI International Inc.'s bank meeting was pushed out to March 31 at 10 am ET from the previously scheduled date of March 25, according to a buy side source.

"I have no idea why it's been pushed off. Probably scheduling conflicts or something," the source said.

The company is expected to launch a $550 million credit facility consisting of a $200 million five-year revolver with an interest rate of Libor plus 225 basis points and a 50 basis points undrawn fee, and a $350 million seven-year term loan B with an interest rate of Libor plus 225 basis points.

Banc of America Securities LLC is the lead bank on the deal.

Proceeds will be used to finance the $415 million cash acquisition of American Management System Inc.'s Defense and Intelligence Group.

Closing on the acquisition is expected to take place by May and is conditioned on CGI Group Inc.'s successful completion of a tender offer for all of the outstanding shares of AMS for $19.40 per share or $858 million. The transactions are also subject to regulatory and government approvals.

Assuming the transaction is consummated in May, CACI estimates the acquisition of the Defense and Intelligence Group will add approximately $275 to $285 million to its fiscal year 2005 revenues and incremental earnings per share of approximately $0.14 to $0.17 per share. The EBITDA margin for DIG in FY 2005 is expected to be 15% to 17%, according to a company news release.

The company projected pro forma debt at June 30 of $415 million, pro forma debt/trailing 12 months EBITDA of 2.6 times at June 30, pro forma cash of $20 million and available borrowing capacity of $135 million under the new credit facility at June 30.

CACI is an Arlington, Va. provider of information technology and network solutions. The Defense and Intelligence Group is a Fairfax, Va. provider of business management solutions to the U.S. government.

CalGen closes

Calpine Generating Company LLC closed on its $700 million in new term loans, according to a company news release. Morgan Stanley was the lead bank on the deal.

The bank financing consists of $600 million of first priority secured floating-rate term loans due 2009 with an interest rate of Libor plus 375 basis points and a Libor floor of 125 basis points, and $100 million of second priority secured floating rate term loan due 2010 that was offered at 98.5% with an interest rate of Libor plus 575 basis points and a Libor floor of 125 basis points.

Proceeds from the term loans, combined with proceeds from notes offerings, were used to repay in full approximately $2.3 billion in borrowings outstanding under the original $2.5 billion CCFC II revolver, which was scheduled to mature in November 2004.

The notes offered consists of $235 million of first priority secured floating-rate notes due 2009 with an interest rate of Libor plus 375 basis points and a Libor floor of 125 basis points, $640 million of second priority secured floating-rate notes due 2010 that was offered at 98.5% with an interest rate of Libor plus 575 basis points and a Libor floor of 125 basis points, $680 million of third priority secured floating-rate notes due 2011 with an interest rate of Libor plus 900 basis points and a Libor floor of 125 basis points, a $150 million of third priority secured fixed-rate notes due 2011 priced at 11.50%.

Net proceeds from the term loan and high yield offerings totaled approximately $2.3 billion after deducting fees and expenses associated with the refinancing, according to the release.

In addition, CalGen obtained a $200 million three-year revolver with an interest rate of Libor plus 350 basis points. The Bank of Nova Scotia was the lead bank on this bank deal.

Borrowings under the revolver can be used for specified working capital purposes and for letters of credit.

CalGen is a wholly owned subsidiary of Calpine Corp., a San Jose, Calif., power company.

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