Cash drives investor demand; Bell seen cutting rate; Nortek, Allegheny Energy gain in trading

By Paul A. Harris

St. Louis, Sept. 16 - Borrowers are doing the driving as investors in the leveraged loan market continue to experience a cash-driven craving for new paper - an appetite that lately never seem to be completely satisfied, sources said Thursday.

"The few weeks leading up to Labor Day were pretty bad in terms of supply," observed one investor.

"It has obviously picked up since then, but by no means has it kept up with the demand from the CDOs and mutual funds, etc.

"They all have tons of money to put to work, but there are not enough deals out there to do that."

In the new issue market details emerged on the PacifiCare Health Systems Inc. $750 million credit facility which the Cypress, Calif. company will use to help fund its acquisition of American Medical Security Group.

Meanwhile in an aftermarket that was muted by Rosh Hashanah, firming was seen in the existing paper of Allegheny Energy Inc. and Nortek, Inc.

Bell Sports expected to flex

The above-quoted buy-side source pointed to what ended up being Thursday's topic of the day: Riddell Bell Holdings Inc. (Bell Sports Corp.)'s $160 million credit facility (B1/BB-) via Goldman Sachs and Wachovia.

Earlier in the week, the investor said, the $110 million term loan was being talked at Libor plus 275 to 300 basis points, while the $50 million revolver was talked at Libor plus 275 basis points.

However, the investor continued, that was before the Irving, Tex., helmet-maker's deal started going gangbusters.

"Given how oversubscribed it is I can't imagine that they won't flex," the investor commented, adding that the deal is reported to be four times oversubscribed.

"I can't imagine it gets below [Libor plus] 225," the buy-sider reasoned. There's no way anybody would be willing to do that. But even at the 225-level I'm sure people will still do it.

"Right now people are taking any kind of assets they can get. If it's a pretty solid deal they'll take the 225 and sit on it until something better comes around."

Later in the day a trader told Prospect News that there is rumored to be $600 million of orders in the book for the $110 million term loan.

"They're going to flex it down to 225," the trader added. "They initially were talking 250, but I heard it could go as low as 225.

"That's a decent deal, though," the trader added. "You have two leaders in a market that's probably a pretty good market."

Proceeds from the loan are being used to help fund Fenway Partners Inc.'s acquisition of the company from GarMark Partners LP, Wachovia Investors Inc. and Chartwell Investors for about $240 million.

Jostens term B filling up

Elsewhere, sources said, Jostens IH Corp.'s $870 million seven-year term loan B is getting its fair share of investor attention.

The Minneapolis printer's institutional piece, which is talked at Libor plus 275 basis points, is part of a $1.27 billion credit facility (B1/B+) via Credit Suisse First Boston.

"Earlier we were hearing that it was filling up, but now we're hearing that it's filled," a trader said shortly after the lunch hour.

Also included in the deal is a $250 million five-year revolver talked at Libor plus 250 basis points with a 50 basis points commitment fee and a $150 million six-year term A talked at Libor plus 250 basis points. Proceeds will be used to help fund KKR's creation of one large company from Jostens, Von Hoffmann Corp. and Arcade Marketing.

Graham Packaging first lien "mildly oversubscribed"

The trader also said that York, Pa. blow-molded plastic container maker's 1.35 billion term loan B (B2/B) is mildly oversubscribed.

Talk on the term B is Libor plus 275 basis points.

It is part of an overall $1.95 billion credit facility that is being led by Deutsche Bank, Citigroup and Goldman Sachs, which also contains a $250 million revolver (B2/B) talked at Libor plus 275 basis points, and a $350 million second-lien term loan C (Caa1/CCC+), which was talked at Libor plus 475-500.

The trader specified that the talk on the term C seemed low. "You expect a second lien loan to come at least 300 basis points behind the first lien," the trader commented.

PacifiCare expects lower rate

Among the new offerings on the calendar is PacifiCare Health Systems Inc., which announced a new $750 million credit facility (Ba2/BBB-) in a Wednesday press release.

Dan Yarbrough, the director of investor relations for PacifiCare, told Prospect News on Thursday that the deal, which is being led by JP Morgan, is expected to bear an interest rate that is 50 basis points lower than that of its existing facility, reflecting the company's improving ratings.

"Pricing is not final yet but we're thinking that based on our recent credit rating upgrades from both S&P and Moody's we should be around Libor plus 175, versus the Libor plus 225 that we have right on our existing facility," Yarbrough (see related story in this issue).

Trading muted by holiday

Meanwhile among existing loans, traders seemed to concur that the Jewish holiday put the damper on action in the secondary market.

However most of the news among traders seemed to be good news.

One trader said that the paper of Nortek Inc. "looked strong," at 101.50 bid, up a quarter of a point. The trader noted that Nortek had been 101.25 bid, 101.50 offered for the past week or so.

Late last month Nortek Holdings, Inc., the parent company of Nortek, Inc. announced that the building products company had been acquired by Thomas H. Lee Partners, LP, in partnership with Richard L. Bready, Nortek's chairman and chief executive officer and other members of management.

The trader also saw positive movement in the paper of Allegheny Energy, which "jumped" to 101.25 bid.

"We saw it at 101 earlier in the day," the trader added.

Late last week Fitch Ratings affirmed the existing senior unsecured rating of Allegheny Energy at BB-, reflecting "the new management's ongoing progress in restructuring efforts and debt reduction and adequate parent company liquidity, as well as the high consolidated leverage and weak cash flow coverage ratios."

Allied Waste gets a slight bounce

Elsewhere traders reported that the bleeding appears to have been stanched with regard to the loans of Scottsdale, Ariz.-based Allied Waste.

On Tuesday, the firm revealed that for a second time this year it was reducing its outlook for operating income before depreciation and amortization for 2004 by about 3% to 4% from previous guidance.

Reacting to the downward guidance revision, as well as weaker operating earnings and cash generation, and higher leverage than anticipated over the last 12 months ended June 30, Moody's Investors Service placed Allied Waste's ratings on review for possible downgrade, including the Ba2 bank debt rating.

The events had caused bank debt to be quoted lower by about half a point on both the term loan B and the revolver on Tuesday. However traders reported a dearth of activity in the paper on Wednesday.

"It was a little bit softer on Wednesday," one trader observed. "The revolver was down about a quarter, trading in the mid-98s.

"But today it's a little better."

He quoted the revolver at 98.25 bid, 99 offered and the term B at 101.25 bid, 101.875 offered.

Another trader said that Allied Waste was "not moving much" on Thursday, and spotted it at 101.375 bid on the term B.

Meanwhile a trader had the term loan of Centennial Cellular up slightly, citing levels of 100.75 bid, 101 offered.

Vanguard Health Systems bank loan breaks 100.75-101.125

Meanwhile the new Vanguard Health Systems Inc.'s $1.05 billion credit facility (B2/B) broke for trading on Thursday, sources said.

One trader spotted it at 101 on the break. Another gave levels of 100.75-101.125.

The facility includes a $475 million term B at Libor plus 325 basis points plus a $250 million revolver, a $175 million delayed-draw term loan at Libor plus 175 basis points and a $150 million delayed-draw acquisition term loan.

Bank of America and Citigroup are leads, with Bank of America listed on the left.

Proceeds will be used to help fund a recapitalization that includes The Blackstone Group purchasing a majority equity interest in the company. Vanguard is a Nashville, Tenn., owner and operator of acute care hospitals and related health care services.

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