Primary strong but investors seen as being more particular in their choices

By Sara Rosenberg

New York, March 25 - Although the primary bank loan market is still strong, there has been a noticeable change in investor attitude lately as some recently launched deals have been said to be struggling, with some even needing to be reworked before fully syndicating, when compared to the blowouts that were seen just a couple of weeks ago.

"Market sentiment has definitely changed," a sellside source said. "The mix is shifting to acquisition from refinancing. People are selective based on the credit. Price is factoring in instead of everything being gobbled up."

"Deals are taking a little longer to fill out," a second sellside source said. "People still have money. [They] still like LBO, new money deals. Things are coming out with more aggressive leverage and more aggressive pricing. Capacity is out there. Good deals are getting done. [But] LBO business has picked up.

"Anytime there's a change in supply/demand equilibrium there's a perceived ability for investors to be choosy...People are still sitting on money and looking for ways to put it to use. Anything that isn't a big liquid deal like [Sealy and Warner Music] will be more difficult. [The] market continues to be strong."

"You can definitely see that some deals have not blown out like they were two months ago," a fund manager added. "People are being a little bit pickier, a little bit choosier. I pretty much decided not to do [Home Interiors & Gifts Inc]. I just wasn't that interested in that business model. I'm not really into the home show type of thing. [And], sales representatives aren't actually employed by the company. The last deal I turned down before this was Nebraska Book when they brought the first deal out [in October] and GNC around November."

For example, Home Interiors moved price talk up twice on its $320 million term loan B (B2/B) since its bank meeting, first to Libor plus 375 basis points from Libor plus 325 basis points and then to Libor plus 425 basis points from Libor plus 375 basis points.

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

Builders FirstSource had to increase it first lien term loan (B+) by a total $80 million to $230 million and flex up pricing by 25 basis points to Libor plus 325 basis points. The company had to decrease its second lien term loan by a total of $80 million to $85 million, flex up pricing by a total of 250 basis points to Libor plus 850 basis points, add a 2% Libor floor and add a 1% upfront fee before the deal wrapped up.

Builders FirstSource is a Dallas supplier of building products to professional, large-scale homebuilders.

Lastly, there's Prestige Brands, which, although momentum has picked up since earlier this week, is still not full on the second lien term loan.

At the beginning of the week, it was said that Prestige had about $250 million in commitments on the $350 million term B (B1/B) and about $25 million or $30 million in commitments on the $100 million second lien term loan C (B2/CCC+).

However, since then, the syndicate has received "enough orders to fill up the first lien but they still haven't filled up the second lien," the fund manager said, adding that maybe the roadshow for the $210 million senior subordinated notes that kicked off on Tuesday helped spark some momentum on the credit facility.

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

ATP restructures

ATP Oil & Gas Corp. reworked its credit facility, upsizing the total deal size to $185 million from $175 million and adding a second lien term loan.

The facility now consists of a $150 million five-year term loan B with an interest rate of 850 basis points and a $35 million five-year second lien term loan with an interest rate of Libor plus 1000 basis points, according to a syndicate document.

Originally, the deal was launched as a $175 million five-year term loan B with an interest rate of Libor plus 850 basis points.

Credit Suisse First Boston is the lead bank on the deal.

Proceeds will be used to refinance the company's existing $125 million credit facility that consists of four tranches. Of the total amount $110 million is a U.S. facility due in August 2007 and $15 million is a U.K. facility due on Jan. 31, 2005. Advances under the U.S. portion of the credit facility bear interest at the base rate plus a margin of 100 to 800 basis points, depending on the amount outstanding. As of the end of February, the average effective interest rate on the U.S. facility was about 9% per annum. Advances under the U.K. portion of the credit facility bear interest at the rate of 15% per annum, according to an 8-K filed with the Securities and Exchange Commission on Feb. 27.

The company is looking to increase its bank line as incremental liquidity to bring a couple of projects on reserve, a market source previously explained to Prospect News.

ATP is a Houston natural gas and oil company.

Sealy oversubscribed

Sealy Corp.'s $560 million eight-year term loan B already had $1.2 billion in orders on the books by Thursday morning, according to a market source. JPMorgan and Goldman Sachs are the lead banks on the deal.

"It was half full by the bank meeting, full about after a day or so and has been steadily building since then," the source said. "High-yield bonds started the roadshow so that's helped fill out the story."

The term loan B is priced with an interest rate of Libor plus 275 basis points with a stepdown to Libor plus 250 basis points under certain conditions, and is being offered to investors at par.

The $685 million credit facility (B2/B+), which launched via a bank meeting on March 18, also contains a $125 million six-year revolver with an interest rate of Libor plus 250 basis points.

This past Monday, Sealy kicked off a roadshow for $490 million of senior subordinated notes due 2014 (Caa1/B-). The bonds are expected to price on Tuesday.

Proceeds from the loan, combined with proceeds from the proposed bond offering and equity, will be used to help fund Kohlberg Kravis Roberts & Co.'s (KKR) approximately $1.5 billion acquisition of Sealy. Substantially all of the Trinity, N.C., bedding manufacturer's existing debt will be refinanced in the transaction.

Under the acquisition agreement, KKR and Sealy management will acquire about 92% of Sealy, with existing shareholders retaining the remaining 8% interest. Sealy is being acquired from a private investment group that includes Bain Capital, Charlesbank Capital Partners, JPMorgan Partners, CIBC Argosy Merchant Fund and BancBoston Capital.

Cinemark oversubscribed

Cinemark USA Inc.'s $270 million term loan (Ba3/BB-) is also well oversubscribed with more than $400 million in orders for the tranche even with the syndicate's decision to launch the deal to only about 25 accounts, according to a market source.

The term loan, which also launched on March 18, contains price talk of Libor plus 250 basis points.

Goldman Sachs and Lehman Brothers are the lead banks on the deal.

Proceeds from the term loan will be used to repay existing term loans and to repurchase or redeem Cinemark USA's 8½% series B senior subordinated notes due 2008.

As was previously reported, the transaction is being done in connection with the merger agreement between the parent company, Cinemark Inc., and affiliates of Madison Dearborn Partners Inc. in a transaction valued at about $1.5 billion. The merger has been approved by the company's board of directors and shareholders and is expected to close in April.

The company's current shareholders include the founder, chairman and chief executive officer Lee Roy Mitchell, and The Cypress Group LLC. As part of the transaction, Mitchell and members of management will retain significant equity stakes in the company.

Cinemark is a Plano, Texas, motion picture exhibitor.

Luigino's blows out

Luigino's Inc.'s $175 million term loan is two times plus oversubscribed as the deal ended up pricing at the wide end of talk at Libor plus 300 basis points, according to a market source.

The $205 million credit facility also contains a $30 million revolver with an interest rate of Libor plus 275 basis points.

Proceeds will be used to refinance debt and to fund a dividend payment.

Upon completion of the bank transaction, the company will have 3½ times senior and total leverage.

Luigino's is a Duluth, Minn., frozen prepared foods company.

CalGen first lien higher

Calpine Generating Co. LLC's first lien term loan was quoted slightly higher on Thursday at par bid, par ¼ offered, although there was not a huge amount of trading seen in the name as many market participants seem to be focused on the primary, according to a trader.

On Wednesday the paper was quoted at 99¾ bid, par ½ offered by one trader and 99 7/8 bid, par ¼ offered by a second trader.

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

American Achievement closes

Fenway Partners Inc. announced on Thursday that it completed its acquisition of American Achievement Corp. from Castle Harlan Inc.

In connection with the buyout, American Achievement obtained a new $195 million credit facility (B1/B+) consisting of a $40 million revolver and a $155 million term loan.

Goldman Sachs and Deutsche Bank were the lead banks on the deal, with Goldman listed on the left.

American Achievement is an Austin, Texas, manufacturer and seller of high school and college class rings and yearbooks.

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