Alliance One upsizes; Fender trades higher, Calpine slips

By Paul A. Harris

St. Louis, April 25 - Sources in the leveraged loan market reported very little activity on Monday, citing the Passover holiday and the fact the bank loan market has gotten "whipped around" somewhat in tail winds created by the volatile equity and high-yield bond markets.

Alliance One International Inc., the entity created from the merger of leaf tobacco firms Dimon Inc. and Standard Commercial Corp., upsized its credit facility to $700 million. The restructured facility adds a term loan B tranche and upsizes the existing pro-rata portion of the facility.

Meanwhile in the aftermarket, traders said that volumes were extremely thin. The existing paper of guitar maker Fender Musical Instruments Corp. hit a major chord, while the diminuendo continued for the second-lien paper of Calpine Corp.

And while the Premcor Inc. and Valero Energy bonds moved higher on news of a merger agreement that finds Valero acquiring Premcor, the bank loans did not move, according to traders.

Malaise driving buyers to safety

One bank loan investor who spoke on Monday said that while details remain to be nailed down, the Premcor-Valero Energy deal holds forth the promise of significant new issuance.

Meanwhile, the investor said, the market's focus continues to narrow on quality paper.

"The bank loan market has taken its cue from the high yield," the investor commented. "The entire market is down probably half a point, at least.

"It's nothing specific - just kind of a malaise, if you will.

"The secondary market is where we saw it initially.

"Then in the primary market a mentality developed where people started focusing on 'sweet-spot, middle-of-the-road' deals.

"Anything on the fringe is going to get whipped around a little."

Eying Valero-Premcor deal

The investor went on to say that Monday's announcement that Valero Energy Corp. and Premcor Inc. have come to a merger agreement for Valero to acquire Premcor in an $8 billion transaction had sent the market scrambling.

"That's going to be a huge deal," the investor said, adding that the merger financing is expected to include new bank debt as well as new junk bonds.

"It depends upon how many people tender for cash, versus taking the stock, as to how large the deal is going to be," the investor said.

"You get 0.9 shares or you get cash. So the absolute size of the deal, on a cash basis, isn't really known yet.

"But it should be an interesting one."

According to information release Monday by Valero and Premcor, the merger is expected to result in Valero adding four refineries and 790,000 barrels per day of capacity to its system, making it the largest refiner in North America.

While news of the merger gave Valero's bonds a lift and sent Premcor's surging ahead - Premcor's 6 3/8% notes due 2014 traded at 106.50 bid, up five points - traders reported no movement in the existing bank loan paper.

Alliance One upsizes, boosts pricing

Meanwhile, Monday produced a dearth of primary market news.

One market source told Prospect News that Alliance One International Inc. upsized and restructured its new $700 million credit facility while pulling a $250 million tranche of subordinated notes out of the junk bond market.

The restructured financing, which backs the merger of Dimon Inc. and Standard Commercial Corp. into Alliance One International, is expected to launch during the present week via Wachovia Securities.

New to the deal is a $200 million term loan B which is talked at Libor plus 325 basis points.

The company also upsized the pro rata portion of the leveraged loan to $500 million from $450 million. Included in the pro rata transaction will be the combination of a three-year revolver and a three-year term loan A. Talk on both tranches has been increased to Libor plus 275 basis points from 250 basis points.

The company is also expected to resurface with a downsized $450 million of bonds (sans the subordinated tranche mentioned above) late this week or early next week. The bond offering was postponed on April 19 due to market conditions.

"They were going to do some senior subs, but couldn't get them done or decided not to pay the coupon," the source commented.

Strong technicals prevail

Whether or not bank loan investors have been losing their appetites for riskier deals, one leveraged finance syndicate source told Prospect News on Monday that the market remains technically strong.

"I think people are more conservative than they were a month ago," the official said." "But I think there is still significant liquidity.

"There is still more supply of money than there are loans available."

The official said that his syndicate desk remains reasonably active, but added that little in the way of news is expected to emerge during the present week.

Meanwhile a trader had more or less the same color.

"Our market is still strong, reflecting the fact that technicals are still in our favor," said the trader.

"But some of the second-lien stuff that is out there that is more or less earmarked for the hedge funds is going to show a little more volatility."

Calpine second liens lower

To that end, another trader spotted the second-lien paper of troubled San Jose power producer Calpine Corp. at 75 bid, 77 offered, "off of the lows but still off a couple of points down on the day."

Last Friday, amid news that its securities had been taking a beating throughout the week and further rumors that it was exploring options with regard to a possible bankruptcy filing, Calpine issued a press release addressing what it called "false market rumors" that had created trading pressure on the company's securities.

"While it is not Calpine's policy to respond to market rumors, we feel compelled to comment today to assure the marketplace that these rumors are false," the company stated in the Friday release.

"Calpine remains in compliance with its corporate and project indentures. Further, the company assures the market that it has no plans to file for bankruptcy," the Friday release added.

However the trader said that the leveraged loan market appeared not to be reacting positively to the press release during Monday's session.

Meanwhile another capital markets source attributed some of the continued selling in Calpine to concerns about their power trading business. Earning are expected on May 5.

Calpine's junk bonds also softened during Monday's session.

Fender paper amped up

In what one trader characterized as a "really quiet" Monday session the existing loan paper of Scottsdale, Ariz., guitar-maker Fender Musical Instruments Corp. "moved up a little."

The source said that the paper had traded on Friday "in a par-context," and was seen at 100.5 offered on Monday, up a little.

However the trader could offer no color on the move.

On April 4 Fender announced that its then-president and chief operating officer Bill Mendello would replace Bill C. Schultz as chief executive officer.

Schultz and Mendello completed a leveraged buy-out of Fender Musical Instruments, then a division of CBS Inc., in March 1985.

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