TXU bank debt up 2 to 3 points trailing lender call; bank loan funds see 20th straight inflow

By Paul A. Harris

St. Louis, July 30 - Cash loans generally rallied on Thursday, according to traders who highlighted the debt of CB Richard Ellis and TXU Corp. as conspicuous movers.

Synthetics were also better. The LCDX 12 index closed Thursday at 93.1, 93.4 offered, up from Wednesday's 92.4 bid, 92.6 offered, a trader said.

Meanwhile the bank loan mutual funds saw their 20th consecutive positive flow, a market source said.

The funds saw $40.4 million of cash come in for the week to Wednesday, according to AMG Data Services, the source said.

Tight gets tighter

The already tight technical situation in the bank loan market has tightened further over the past two sessions, market sources said Thursday.

HCA Inc. did its share on Wednesday, according to a trader who recounted that the Nashville, Tenn., hospital company priced $1.25 billion of junk bonds, proceeds from which will go to term out bank debt.

So far HCA has taken out $700 million to $800 million of term loan debt, the trader said.

"You're seeing another leg up in the bank loan market as people look to replace that lost term loan paper with new debt," added the trader, who noted that HCA was widely held in the bank loan market.

"Now they're going to pay off their term loan A and some of their term loan B, and that money will be reinvested back into bank debt.

"Barclays estimates that during the next year the bank loan market could shrink to about $400 billion from $560 billion.

"It makes the already tight market technicals even tighter."

Positive cash flows

Cash continues to flow into bank loans, creating more technical pressure on prices in the secondary market, the trader added.

During the most recent week the bank loan mutual funds saw $40.4 million of inflows.

It was the 20th consecutive week the funds have seen positive flows, the trader said.

Year-to-date the loan funds have seen more than $2.3 billion of positive flows, the trader said, noting that the bank loan funds flows number is dwarfed by the $13.7 billion of year-to-date positive flows seen by high-yield bond mutual funds which report to AMG Data Services on a weekly basis.

Nevertheless the bank loan funds flows numbers indicate that the amount of cash that is meant to be put to work in bank loans is unmistakably mounting, the source added.

TXU rallies on lender call

TXU's bank loan paper rallied 2 to 3points on Thursday, according to a trader who spotted the term loan B at 77 bid.

"They want to issue second-lien debt and take out some of the first-lien," said the trader.

CB Richard Ellis gains

The term loan B of commercial real estate company CB Richard Ellis was stronger on Thursday, based on Wednesday's earnings call, a trader said.

The loan was at 96½ bid, 97½ offered, ½ point higher on the day, the trader added.

Another trader said that the company is seeking to extend its tranches, for a fee. And it also plans to refinance by 2012.

"I think people got comfortable with that," the trader commented.

"With as much of a hit as their stock price has taken over the past year, the bank debt is still very well covered, at more than two-times the enterprise value."

Chester Downs prices loan

In the primary market, terms circulated on the Chester Downs and Marina LLC $230 million Libor plus 987.5 basis points seven-year secured term loan (B3/B). It priced at 94.125.

The deal was at 94.50 bid late Thursday, traders said.

Citigroup, Bank of America, JPMorgan and Jefferies were the joint leads on the deal, with Citi the left lead.

The loan includes an incurrence-based high-yield covenant package.

Amortization is based on the company's total leverage ratio. If leverage is 3.25 to 1.00, then amortization is 7.5% per annum. If leverage is less than or equal to 3.25 to 1.00 and greater than 2.50 to 1.00, then amortization is 3.5% per annum. And, if leverage is less than or equal to 2.50 to 1.00, then amortization is 1.0% per annum.

Security is substantially all of the assets of the company.

Proceeds will be used to refinance existing debt and purchase partnership interests.

Elsewhere Ntelos Holdings Corp.'s Libor plus 375 basis points six-year term loan is expected to allocate on Aug. 11, a market source said.

Earlier in the week Ntelos decreased the original issue discount it is offering to investors for participating in the deal by 50 bps, to 99 from previous discount talk of 98.5.

JP Morgan is leading the $670 million credit facility, which also includes a $35 million revolver.

UBS is also involved in the deal.

Proceeds will be used to refinance and extend the maturity of Ntelos' outstanding $603 million first lien term loan due August 2011 and for general corporate purposes.

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