HealthSouth unsecured and subordinated loans jump on refi; Central Garden & Pet price talk surfaces

By Sara Rosenberg

New York, Feb. 3 - HealthSouth Corp.'s senior unsecured term loan and senior subordinated term loan traded up Friday on the heels of the company's major recapitalization announcement, as investors are expecting to reap some sort of call premiums.

In primary happenings, Central Garden & Pet Co. came out with price talk on its credit facility as the deal was launched into syndication with a bank meeting Friday.

HealthSouth Corp.'s $200 million senior unsecured term loan traded up early in the day Friday as lenders are anticipating being repaid at a premium in connection with the recently announced refinancing deal, however, just what the premium might be still appears to be unclear.

And, the company's $355 million senior subordinated term loan headed up as well as investors have computed the agreement's make-whole call into their repayment equation.

The senior unsecured term loan was quoted at 102½ bid, 104½ offered during market hours, up from prior levels of 101¾ bid, 102¼ offered, according to one trader.

This senior unsecured term loan was obtained in June 2005, and under the credit agreement, the loan is non-prepayable for one year, meaning that it's still in the non-call stage, and then at 102 in year two. The facility carries an interest rate of Libor plus 500 basis points.

Meanwhile, the senior subordinated term loan was quoted at 113 bid, 114 offered on Friday, up from Thursday's trading level of around 110, and considerably higher than the 105 bid, 106 offered levels that were seen during the week of Jan. 23, a second trader said.

This senior subordinated term loan, is also currently in a non-call stage; however, in that particular credit agreement there is a make-whole call provision, which is how lenders have come up with the speculation of being taken out at this 113 to 114 type of level, the second trader explained.

When announcing the new refinancing plan late Thursday, HealthSouth did say that it is trying to amend the senior unsecured term loan and the senior subordinated term loan credit agreements to, among other things, allow for the prepayment of each of these term loans.

Lastly, HealthSouth's first-lien term loan was being quoted at par 1/8 bid, par 3/8 offered on Friday, pretty much unchanged from previous levels, the first trader said. He explained that the refinancing rumor has been floating around the market for a while now so the paper had time to move toward repayment levels.

HealthSouth is scheduled to hold a bank meeting this coming Thursday to launch a $2.55 billion senior secured credit facility and a $1.3 billion senior unsecured interim term loan into syndication.

The senior secured credit facility, which includes a $2.05 billion term loan B and a $500 million revolver, is talked at Libor plus 225 basis points if the deal is rated with a stable outlook at B1/B+ or better, and Libor plus 250 basis points if the deal is rated lower than B1/B+, according to a commitment letter filed with the Securities and Exchange Commission Friday.

The $1.3 billion senior unsecured interim term loan will carry an initial interest rate of Libor plus 450 basis points. After six months, the interest rate will increase by 100 basis points and then will increase by 50 basis points every three months thereafter.

J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Merrill Lynch & Co. are joint lead arrangers and joint bookrunners on the senior secured credit facility, with J.P. Morgan on the left.

Merrill Lynch, Citigroup Global Markets and J.P. Morgan Securities are joint bookrunners on the unsecured interim loan, with Merrill Lynch on the left.

Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Wachovia Capital Markets LLC are co-managers on both the senior secured credit facility and the senior unsecured interim loan.

Proceeds from the credit facility and the interim facility will be used to prepay substantially all of the company's existing debt, including its $2.03 billion of outstanding senior notes, $319 million senior subordinated notes and all outstanding bank debt.

HealthSouth is a Birmingham, Ala., provider of outpatient surgery, diagnostic imaging and rehabilitative health care services.

Central Garden sets talk

Central Garden & Pet Co. released price talk on its proposed $650 million credit facility as the deal was presented to lenders during a Friday bank meeting, according to a market source.

The facility's $350 million five-year revolver was launched with opening pricing of Libor plus 150 basis points, the source said.

And, the facility's $300 million seven-year term loan B was launched with opening pricing of Libor plus 175 basis points, the source added.

JPMorgan, CIBC and Bank of America are the lead banks on the deal, with JPMorgan the left lead.

Proceeds from the facility will be used to help fund the acquisition of Farnam Cos. Inc. for $287 million and to refinance existing debt.

Central Garden & Pet is a Walnut Creek, Calif., marketer and producer of products for pets, lawns and gardens. Farnam is a manufacturer of health care products primarily for horses, household pets and livestock.

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