OM Group trades almost a point higher as investors expect a paydown from asset sale

By Sara Rosenberg

New York, June 3 - OM Group Inc.'s term loan C traded around 99¾ on Tuesday, up almost a point from previous levels around 98¾ to 99, as investors ignored the lowered second quarter financial outlook and focused on the announced asset sales that will be used to pay down debt.

The company now expects its second quarter results will be in the range of $0.12 to $0.16 per diluted share, compared to the consensus analyst estimate of $0.18 per share and previous company guidance of $0.15 to $0.19 per share. OM Group blamed the weak dollar and lower than expected nickel production volumes due to its maintenance shut-down, according to a news release.

However, what really grabbed the bank loan market's attention was the announcement that OM Group has entered into a definitive agreement to sell its Precious Metals business to Umicore for €643 million, or approximately $752 million, in cash. The transaction is expected to result in net proceeds of approximately $700 million, which will be used to reduce debt. The proposed sale is anticipated to close sometime in the third quarter of 2003.

This sale will allow the company to meet the terms and conditions of its amended revolver and term loan agreement with respect to asset sales before the Dec. 31, 2003 deadline, according to a news release.

Furthermore, the company announced that it has signed a letter of intent to sell its PVC Heat Stabilizer product line for approximately $10 million in cash. The transaction is expected to be completed on or before June 30 and the net proceeds will be used to further reduce debt.

OM Group is a Cleveland producer and marketer of value-added, metal-based specialty chemicals and related materials.

Charter Communications Inc.'s term loan B continued to trade around 94 on Tuesday after a pretty large run-up that began last week due to an amendment of the credit agreement, which included a 50 basis points increase in the spread. The St. Louis cable company's amendment also regarded a $300 million from Paul Allen.

The loan closed on Friday at 92½ bid, 93½ offered.

Overall, activity in the secondary market has mainly been coming from funds rather than the Street, according to market sources, so plenty of bids for bank paper can be found but not many offers are being seen.

"The market continues to be so wide in the Street that a lot of the activity has been outside of the Street," a trader said.

For example, Allied Waste Industries Inc.'s new term loan B is being quoted with a bid-offer spread of up to a point and a minimum of 3/8 to ½ point wide, "which is unheard of", the trader said. There was a bid of par 5/8 and an offer of 101 1/8 for the Scottsdale, Ariz. waste management company's paper on Tuesday. However, the offer pulled itself out of the market so that by late afternoon there was just the bid hanging around in the secondary.

"There are plenty of bids out there," the trader continued. "Right now a lot of funds are ramping up, with Eaton Vance at the top of that list."

Eaton Vance Corp. is one of the biggest buyers due to its recently launched Eaton Vance Limited Duration Income Fund, which invests primarily in senior secured floating-rate loans, mortgage-backed securities and corporate bonds that are investment-grade quality.

The closed-end fund raised $2.02 billion in gross proceeds at the time of its initial public offering and the fund anticipates using financial leverage initially equal to approximately 34% of gross assets, which if completed at expected levels would bring the total assets to approximately $3 billion. Payson Swaffield is managing the bank loan portion.

With these funds purchasing bank debt, sellers won't bother offering their bank paper in the Street, they'll just go straight to the funds, the trader explained.

In follow-up news, PacifiCare Health Systems Inc. closed on a new $300 million senior secured credit facility (B1) that consists of a $150 million revolver due in 2006 and a $150 million term loan due in 2008. JPMorgan Chase Bank served as administrative agent and as collateral agent, J.P. Morgan Securities Inc. and Morgan Stanley Senior Funding, Inc. served as co-lead arrangers and joint bookrunners, and CIBC World Markets Corp. and Wells Fargo Bank served as co-documentation agents.

Proceeds will be used by the Cypress, Calif. operator of HMOs to repay the full $131 million of outstanding debt under its existing bank facility, and the remainder will be available for general corporate purposes.

Hayes Lemmerz International Inc. closed on its $550 million exit financing credit facility (Ba3/BB-) in conjunction with its emergence from Chapter 11. Citibank and Lehman Brothers were the lead banks on the deal.

The Northville, Mich. auto parts maker's facility consists of a $100 million five-year senior secured revolver with an interest rate of Libor plus 350 basis points and a $450 million six-year senior secured term loan B with an interest rate of Libor plus 475 basis points.

"Now with the Chapter 11 behind us, we not only have significantly reduced the company's debt level, but have also improved our capital structure in a way that allows for our future growth. We have improved the operating structure and practices of the business - and effectively transformed it - into a healthier company. We are re-energized and will continue to aggressively pursue our goals of satisfying our customers, becoming a low-cost producer and having the best people, said Curtis J. Clawson, chief executive officer, in a news release.

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