Spectrum better on merger news; Celanese up with numbers; Freescale still seeing pressure

By Sara Rosenberg

New York, Feb. 9 - Spectrum Brands Inc.'s strip of bank debt was stronger during Tuesday's trading session as the company announced that it will be merging with Russell Hobbs Inc. and, in connection with the transaction, will be refinancing its credit facility.

In more trading happenings, Celanese Corp.'s term loan B headed higher after the company reported positive fourth-quarter results that showed a year-over-year improvement in earnings, sales and operating EBITDA.

Also, Freescale Semiconductor Inc.'s old term loan felt a little heavier in trading as the company's existing legal battle and uncertainty over its ability to complete its credit facility amendment continued to weigh on the debt.

Meanwhile, over in the primary market, Global Tel*Link Corp. came out with price talk on its proposed credit facility as the deal is getting ready to launch with a conference call later this week.

Spectrum gains on merger/refi

Spectrum Brands' strip of term loan and letter-of-credit facility was better as the company announced plans to refinance the bank debt as part of its merger with Russell Hobbs, a Miramar, Fla.-based marketer and distributor of small household appliances, according to a trader.

The strip of debt was quoted at par bid, par ½ offered, up from Monday's closing levels of 99¾ bid, par ¼ offered, the trader said.

Funds for the refinancing of Spectrum Brands' existing senior debt and a portion of Russell Hobbs' existing senior debt will come from a new $1.05 billion credit facility and the issuance of $750 million of senior secured notes due in 2017.

The new credit facility is comprised of a $300 million four-year ABL revolver and a $750 million term loan due in 2016.

Credit Suisse, Bank of America and Deutsche Bank are the lead banks on the new debt financing.

Spectrum leverage to improve

Spectrum Brands said that following the refinancing of its existing credit facility, the new combined entity is expected to have a leverage ratio of roughly 3.8 times. By comparison, Spectrum Brands' leverage ratio at the end of the first fiscal 2010 quarter was 4.7 times.

The company had $1.334 billion drawn under its senior term loans and about $72 million drawn under its $242 million ABL facility at the end of its first fiscal 2010 quarter.

In addition, the combined company, which will operate under the Spectrum Brands name, is expected to deliver about $3 billion in annual revenues with $430 million to $440 million of adjusted EBITDA in fiscal 2010.

Spectrum merging in all stock deal

Under the merger agreement, current shareholders of Spectrum Brands will receive one share in the new combined company for each share they hold.

Also, as part of the transaction, Harbinger has agreed to convert its existing about $158 million of Russell Hobbs' term debt and about $207 million of Russell Hobbs' preferred stock into common stock of the new company at a price of $31.50 per share.

The all-stock transaction values Spectrum Brands at an enterprise value of $2.6 billion, or $965 million net of debt, which equates to $31.50 per share net of outstanding debt, and privately held Russell Hobbs at an enterprise value of $675 million, or $661 million net of debt.

Closing is expected to take place this summer, subject to approval by holders of a majority of Spectrum Brands' common stock not owned by Harbinger, a 45-day go-shop period, closing of the new financing and other customary conditions.

Spectrum releases numbers

Also on Tuesday, Spectrum Brands announced financial results for its first quarter of fiscal 2010, including a net loss of $60.2 million, or $2.01 per diluted share, compared to a net loss of $112.6 million, or $2.19 per diluted share, in the previous year.

Consolidated net sales for the quarter were $591.9 million, up 7.9% from $548.5 million in the first quarter of fiscal 2009.

And, consolidated adjusted EBITDA for the quarter was $81.4 million, up $27.7 million, or 51.6%, over the prior year.

Spectrum Brands is an Atlanta-based consumer products company.

Celanese rises on earnings

Celanese's term loan B gained some ground in trading following the release of favorable fourth-quarter numbers, according to traders.

The term loan B was quoted by one trader at 95¾ bid, 96¾ offered, up from 95½ bid, 96½ offered, and by a second trader at 95¾ bid, 96¾ offered, up from 95½ bid, 96¼ offered.

For the fourth quarter, Celanese reported net earnings of $5 million, or $0.02 per diluted share, compared to a net loss of $155 million, or $1.09 per diluted share, in the prior year.

Net sales for the quarter were $1.388 billion, up 8% from $1.286 billion in the fourth quarter of 2008.

Operating EBITDA for the quarter was $227 million versus $63 million in the previous year.

The company continued to generate strong cash flow in 2009 with cash and cash equivalents totaling $1.254 billion at the end of the quarter, compared with $676 million in the prior year, and net debt at the end of the quarter was $2.247 billion, a $610 million decrease from the end of the fourth quarter of 2008.

Celanese confident in EBITDA increase

Celanese also said on Tuesday that it remains confident - even absent a significant economic catalyst - in its ability to increase operating EBITDA in 2010 by about $200 million compared with 2009.

The key areas of operating EBITDA growth include increased volumes across all of its businesses totaling about $100 million and additional fixed spending reductions of about $100 million.

"We saw sustained global demand across our major end-markets and geographies throughout the second half of 2009 and expect this trend to continue in 2010. Even without significant improvement in the global economies in the short term, we are confident that the execution of our strategies will drive improved earnings in 2010 and throughout an economic recovery," said David Weidman, chairman and chief executive officer, in a news release.

Celanese is a Dallas-based chemical company.

Freescale term loan slides

Freescale's old term loan weakened on Tuesday as investors were still reacting to the company's existing legal battle and ramifications that it might have on the amend and extend proposal, according to some traders.

The old term loan was quoted by one trader at 92¾ bid, 93¼ offered, down from 93 bid, 93½ offered, by a second trader at 92½ bid, 93½ offered, down from 93½ bid, 94½ offered, and by a third trader at 92 5/8 bid, 93 1/8 offered, down from 92¾ bid, 93¼ offered.

A fourth trader, however, did call the loan unchanged at 92¾ bid, 93½ offered.

"Going to be hard for this thing to trade up until litigation gets settled," the first trader remarked.

Freescale facing legal issues

As was already reported, on March, 25, 2009, a group of lenders under Freescale's senior secured credit facility challenged the issuance of incremental term loans.

In response to that complaint, the New York state appellate court ordered the trial court proceedings stayed pending the disposition of Freescale's appeal from the denial of its motion to dismiss the case. This stay, however, can be vacated if the company issues new debt.

Then, on Feb. 5, the complaining lenders filed a motion to vacate the stay and to stop the company from continuing with its amend and extend proposal and senior secured notes offering until a ruling on a temporary restraining order is obtained.

Freescale said on Monday that it has agreed to an expedited briefing process on the plaintiffs' motion, with all briefings to be completed by Tuesday, but it is unknown when the appellate court will rule on the motion, or, if the stay is lifted, when the trial court might rule on a temporary restraining order.

Freescale seeking maturity extension

The new motion by the plaintiffs was filed shortly after Freescale launched an amendment to its credit facility that would extend the maturity on its term loan to Dec. 1, 2016 from Dec. 1, 2013, and increase pricing to Libor plus 425 basis points from Libor plus 175 bps on the non-extended loan.

In addition, the amendment would allow for the issuance of $750 million senior secured notes that would be used to repay bank debt, and would permit the company to sell additional senior secured notes, so long as the net cash proceeds from any such issuance are used to prepay bank debt at par.

If a court stops the company from going forward with the amend and extend, the transaction will have to be delayed or withdrawn, and so will the related offering of senior secured notes.

Freescale is an Austin, Texas-based designer and manufacturer of embedded semiconductors for the automotive, consumer, industrial and networking markets.

Global Tel*Link sets talk

Switching to primary happenings, Global Tel*Link began circulating price talk on its proposed $245 million credit facility (B1) as a conference call was scheduled for Thursday to launch the deal to lenders, according to sources.

The $20 million revolver, $185 million term loan and $40 million delayed-draw term loan are all being talked at Libor plus 425 bps with a 2% Libor floor, sources said.

And, original issue discount on the funded term loan is 99, while the delayed-draw term loan is being offered at 98½ with 50 bps paid on allocation.

Credit Suisse and UBS are the lead banks on the deal that will be used to refinance existing debt.

Global Tel*Link is a Mobile, Ala.-based correctional communications technology company.

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