Dynegy falls with market, earnings; Cengage takes steep hit; La Paloma sets loan pricing

By Sara Rosenberg

New York, Aug. 8 - Dynegy Inc.'s new term loans came under pressure on Monday - as did the rest of the secondary market - following equities lower, which tanked on the back of news that Standard & Poor's cut the long-term sovereign credit rating on the U.S. to AA+ from AAA.

Standard & Poor's said that the downgrade reflects its opinion that the fiscal consolidation plan recently reached falls short of what would be necessary to stabilize the government's medium-term debt dynamics and that American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.

In addition to Dynegy, other relatively new loans to the secondary that weakened with the overall turmoil included Reynolds Group, Ocwen Financial Corp. and Quad/Graphics Inc. and existing issuers, such as Cengage Learning and Texas Competitive Electric Holdings Co., tumbled as well.

Over in the primary, La Paloma Generating Co. LLC firmed pricing on its first-lien term loan at the high end of talk, and second-lien pricing came right in line with initial guidance. Rock Ohio Caesars LLC's funded term loan has been met with strong demand ahead of its commitment deadline.

Dynegy softens

Dynegy's recently allocated GasCo and CoalCo terms loans are trading well below their original issue discount prices as the market in general weakened by about two points on the day, according to traders.

Both term loans were quoted at 95 bid, 96 offered, down from 97½ bid, 98½ offered on Friday, one trader said, while a second trader had the debt at 95 bid, 96 offered, down from 97 bid, 98 offered. When the loans broke last Thursday, they were quoted at 98¼ bid, 98¾ offered.

The $1.1 billion five-year GasCo term loan (B2) and the $600 million five-year CoalCo term loan are priced at Libor plus 775 basis points with a 1.5% Libor floor and were sold at an original issue discount of 98. They are non-callable for two years, then at 102 in year three and 101 in year four.

Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. led the $1.7 billion deal, the completion of which was announced on Monday.

Dynegy refinances debt

Proceeds from the GasCo loan were used to repay Dynegy Holdings Inc.'s existing senior secured credit facility, repay existing debt relating to Sithe Energies Inc., make a distribution and fund cash collateralized letters of credit and cash collateral for existing collateral requirements.

During syndication, the GasCo term loan was downsized from $1.3 billion, the CoalCo loan was upsized from $400 million and maturities on both were shortened from six years. Also, pricing on GasCo was increased from Libor plus 650 bps, the discount widened from 99, and call premiums were sweetened from 103 in year one, 102 in year two and 101 in year three. Pricing on CoalCo came in line with talk.

The distribution, sized at $400 million, was split into $200 million from GasCo and $200 million from CoalCo, as opposed to the entire amount coming from GasCo, as was originally planned. Additionally, the CoalCo loan was used to fund cash collateralized letters of credit and cash collateral for existing collateral requirements and for general working capital and general corporate purposes.

Dynegy reorganizes

With the new financing, Dynegy reorganized to form GasCo and CoalCo, with GasCo being a subsidiary that owns eight primarily natural gas-fired intermediate and peaking power generation facilities and CoalCo being a subsidiary that owns six primarily coal-fired baseload power generation facilities.

"The completion of our internal restructuring and the successful closing of the new separate credit facilities were designed to facilitate and give us the operational and financial flexibility to be able to seize value whenever the opportunity presents itself," Robert C. Flexon, president and chief executive officer of Dynegy, said in a news release.

"We will now turn our efforts to determining what additional restructuring steps we can take to improve our overall leverage and to improve stockholder value," Flexon added.

Dynegy releases earnings

Also on Monday, Dynegy came out with second-quarter results that showed a net loss of $116 million, or $0.95 per diluted common share, compared to a net loss of $191 million, or $1.59 per diluted common share, in the prior year.

Operating loss for the quarter was $106 million, compared to an operating loss of $229 million in the 2010 quarter.

Revenues for the quarter were $326 million, up from $239 million in the previous year.

And, adjusted EBITDA for the quarter was $102 million, down 18% from $124 million in the second quarter of 2010.

Dynegy is a Houston-based producer and seller of electric energy, capacity and ancillary services.

Reynolds Group slides

Another new issue loan to succumb to the market heaviness was Reynolds Group's $2 billion term loan (Ba3/BB-), which was quoted by one trader at 93 bid, 95 offered, down from an opening level of 95 bid, 97 offered, and considerably lower than its July 27 breaking price of 99¼ bid, 99¾ offered.

Pricing on the term loan is Libor plus 525 bps with a 1.25% Libor floor, and it was sold at an original issue discount of 99. There are two years of 101 soft call protection and a delayed-draw fee that is the full spread for 90 days from closing.

Proceeds from Reynolds' new term loan will be used to help fund the purchase of Graham Packaging Co. Inc. for $25.50 per share, or a total of about $4.5 billion, including assumed debt.

Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. are leading the deal.

Reynolds is an Auckland, New Zealand-based manufacturer and supplier of consumer food and beverage packaging and storage products. Graham is a York, Pa.-based supplier of plastic containers.

Ocwen retreats in second day

Ocwen Financial's $575 million five-year term loan (B1/B) was quoted at 97 bid, 98 offered, down from Friday's closing levels of 98 bid, 98¼ offered, and breaking levels on Friday of 98 1/8 bid, 98 5/8 offered, according to a market source.

Pricing on the term loan is Libor plus 550 bps with a 1.5% Libor floor, and it was sold at an original issue discount of 98. There is 101 soft call protection for one year.

Proceeds will be used to help fund the purchase of Litton Loan Servicing LP, a provider of servicing and subservicing of primarily non-prime residential mortgage loans, from Goldman Sachs Group Inc.

Barclays Capital Inc. is the lead bank on the deal for the Atlanta-based provider of residential and commercial loan servicing, special servicing and asset management services.

Quad/Graphics drops

Quad/Graphics' new term loan B was another victim of the market, sliding to 95½ bid, 97½ offered, from 96½ bid, 98½ offered, according to a trader. By comparison, the deal broke for trading on July 22 at par 1/8 bid, par 5/8 offered.

Pricing on the term loan B is Libor plus 300 bps with a 1% Libor floor, and it was sold at an original issue discount of 991/2. There is 101 soft call protection for one year.

Proceeds from the J.P. Morgan Securities LLC-led deal were used to refinance an existing senior secured credit facility.

Quad/Graphics is a Sussex, Wis.-based provider of print and related services.

Cengage Learning plummets

Regarding non-new issue names, Cengage Learning's term loan B took a significant fall in Monday's weak session, with levels quoted by one trader at 78½ bid, 79½ offered, down from 83 bid, 84 offered.

The term loan B has been declining since late July when disappointing earnings came out for the company's fourth quarter of fiscal year 2011.

Prior to the July 29 earnings news, the debt was seen in the low-90s context.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

Texas Competitive into 60s

Another example of a non-new issue name to see levels soften by a few points was Texas Competitive, according to a trader.

The company's extended term loan was quoted at 68½ bid, 69½ offered, down from 71 bid, 72 offered, the trader said, adding that it gave up a bit more ground than the estimated average two points that guys were seeing loans in general fall.

Texas Competitive is a Dallas-based energy company.

La Paloma sets pricing

Moving to the primary, La Paloma filled out its $299.2 million six-year first-lien term loan (B2/B) at Libor plus 550 basis points with a 1.5% Libor floor and an original issue discount of 96, the wide end of guidance that had the spread at Libor plus 525 bps to Libor plus 550 bps and the discount at 96 to 97, according to a market source.

Meanwhile, pricing on the company's $110 million seven-year second-lien term loan firmed in line with initial talk at Libor plus 875 bps with a 1.5% Libor floor and an original issue discount of 97.

The first-lien term loan still has 101 soft call protection for one year, and the second-lien loan is still non-callable for one year, then at 102 in year two and 101 in year three.

The company's $424.2 million credit facility also includes a $15 million five-year working capital facility (B2/B).

La Paloma lead banks

Bank of America Merrill Lynch and Macquarie Capital are the lead arrangers on La Paloma's credit facility. SunTrust Robinson Humphrey Inc. is a co-manager.

Proceeds will be used to refinance existing first- and second-lien term loans that were obtained in 2005. The sponsor involved in that earlier transaction, Complete Energy, is no longer there. The current ownership consortium is led by EIG Global Energy Partners and includes Rockland Capital.

Furthermore, proceeds from the credit facility will prefund a debt service reserve as well as prefund major maintenance in 2011 through 2013 and cash collateralize $30.2 million of letters of credit.

La Paloma is a 1,022 MW combined-cycle gas-fired facility located in Kern, Calif.

Rock Ohio well-met

Rock Ohio Caesars' $125 million funded term loan (BB-) has seen a good amount of interest since launching in late July, resulting in multiple oversubscription in advance of this week's commitment deadline, according to a market source.

Price talk on the loan is Libor plus 650 basis points with a 1.5% Libor floor and an original issue discount of 98, and it is non-callable for two years, then at 102 in year three and 101 in year four.

Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. are the lead banks on the deal that will be used to help fund the development of casinos in Cleveland and Cincinnati.

Other funds for the transaction will come from a $62.5 million 12-month delayed-draw term loan (BB-), a $62.5 million 18-month delayed-draw term loan (BB-) and $380 million of second-lien notes. The delayed-draw loans are not being syndicated.

Rock Ohio is a joint venture formed by Rock Gaming LLC and Caesars Entertainment Corp.

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