Conseco's bank debt rallies after Chapter 11 filing announcement

By Sara Rosenberg

New York, Dec. 18 - Conseco Inc.'s bank debt was up about four or five points on Wednesday following news of its Chapter 11 filing. The company's bank debt was quoted at 70 bid, 73 offer, according to a distressed trader.

"I'm hearing that the bank debt is going to be reinstated," the trader said in explanation of why the company's bank paper moved higher on the day the bankruptcy filing was announced.

Conseco filed for Chapter 11 and said it reached agreement with its banks and bondholders on a restructuring of its debt.

"We have reached an agreement in principle with the bank and bondholder representatives to reduce the company's leverage to a level that, together with our targeted operating performance, will support the efforts by the company's insurance subsidiaries to reclaim an 'excellent' financial strength rating from A.M. Best following the restructuring," said Conseco president and chief executive officer William J. Shea in a news release.

Conseco has spent the last couple of months dealing with waivers and forbearance agreements on its $1.5 billion credit facility to cover cross-default provisions under the credit agreement, noncompliance with the debt to capitalization ratio covenant as of June 30, 2002 and potential non-compliance as of Sept. 30.

Conseco Finance Corp. made a separate Chapter 11 filing under which it will be sold to CFN Investment Holdings LLC, a joint venture of Fortress Investment Group LLC, J.C. Flowers & Co., LLC, and Cerberus Capital Management, LP. The buyers will pay an amount equal to Conseco Finance's outstanding secured debt to buy the company's assets and operations.

Furthermore, the St. Paul, Minn. finance company said it has reached an agreement in principal with an affiliate of the buyer and one of its existing lenders for up to $125 million of debtor-in-possession financing.

In primary news, Houghton Mifflin's $725 million credit facility is currently out with the first round, according to a syndicate source, who added that the banks are "just talking to people" right now. The actual bank meeting for the credit facility isn't anticipated to take place until January.

When asked how first round discussions are going, the syndicate source responded, "It's going as expected."

The loan consists of a $325 million revolver with an interest rate of Libor plus 325 basis points and a $400 million term loan B with an interest rate of Libor plus 375 basis points, one syndicate source previously told Prospect News.

On Thursday, a different syndicate source admitted that the structure of the facility is still pretty fluid.

CIBC, Goldman Sachs and Deutsche Bank are the lead banks on the deal that will be used to help fund its purchase from Vivendi Universal by Thomas H. Lee Partners, Blackstone Group, Bain Capital and Apax Partners.

The sale is expected to go ahead on the basis of an enterprise value of €1.75 billion, representing 1.4 times Houghton Mifflin's 2001 revenue and 9.5 times its 2001 EBITDA after bookplate amortization.

Houghton Mifflin is a Boston publishing company.

Aero Products International Inc. is expected to close on its $120 million credit facility on Thursday, according to a syndicate source. CIBC is the administrative agent and co-lead and Wachovia is the syndication agent and co-lead.

The loan consists of a $105 million six-year term loan B with an interest rate of Libor plus 450 basis points and a $15 million five-year revolver with an interest rate of Libor plus 450 basis points.

At launch, the credit facility received a favorable amount of interest. On the morning of the retail bank meeting in November, a syndicate source told Prospect News that a number of pre-commitments were obtained and the deal was moving along "really well".

Proceeds will be used to help fund Investcorp's acquisition of Aero Products from Trivest Partners LP.

Aero Products is a Wauconda, Ill. marketer of air filled bedding products.

Raytheon Aerospace LLC closed on its $70 million in add-on loans on Tuesday, according to a syndicate source. The company's credit facility now consists of a $40 million revolver, including the new $15 million add-on, an existing $45 million term loan A and a $104.375 million term loan B, including the new $55 million add-on. Interest rates on the pro rata tranches are Libor plus 350 basis points. Interest on the institutional tranche is Libor plus 400 basis points.

CIBC was the lead bank on the deal, which will be used to help fund the acquisition of Maritime Flight Group.

Raytheon Aerospace is the company that tried to merge into a new company called Vertex Aerospace LLC through an initial public offering. However, the IPO never was completed since the market "stunk," a fund manager previously told Prospect News.

The company is a Madison, Miss. provider of aerospace and other technical services to U.S. Department of Defense and other government agencies.

Sanmina-SCI Corp. upsized its credit facility to $275 million from $250 million, according to a news release. The five-year term loan was launched earlier this month via Goldman Sachs.

Proceeds will be combined with proceeds from a note sale - upsized to $750 million from $450 million - and will be used to repay debt under the company's existing credit facility, to repay the outstanding balance under its receivables securitization facility, to refinance or restructure its other debt, and to fund further expansion of its business and working capital.

The financings are expected to close on Dec. 23.

Sanmina-SCI is a San Jose, Calif. provider of customized integrated electronic manufacturing services.

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