LCDX lower with stocks; Reliant Energy brings $750 million refinancing; Charter, Tribune active

By Paul A. Harris

St. Louis, May 24 - The leveraged loan market was better bid across the board on Thursday, with decent trading volume, a trader told Prospect News.

Meanwhile the recently incarnated LCDX index traded lower in sympathy with stocks, the trader added, noting that it closed par ½ bid, par 1/2-plus offered. The official close from Markit was 100.51, down 0.02 on the day.

The trader commented that the index is not yet 100% correlated with the cash market.

Meanwhile the Thursday primary market produced very little news.

Reliant Energy, Inc. announced a sizable refinancing which involves $750 million of new bank debt and $1.25 billion of junk bonds.

Up and up

A money manager dug out from beneath a deluge of bank books on Thursday and told Prospect News that the leveraged loan market has been picking up lately.

"Pricing has been going up, which is amazing considering how much supply there is," the source commented, adding that there has been no weakness despite "tons of deals, a lot of them on the crappy side."

The investor said that the buy-side has been happy of late because break prices are improving, and added that three to five weeks ago break prices tended to come in a par and a quarter/par and a half context, whereas more recently they have been par and three-quarters/101.

A market hard to short

This investor, being a long-only player, has been giving the new LCDX index only passing glances.

However the source commented that in a market which has lately known very little volatility, in an economy that appears to be chugging along, the reported high volume in the LCDX is fascinating at the very least.

"The funny thing about LCDX is that the word from the dealer community, just before it started trading, was that macro hedge funds were expected to use it to short the bank loan market," the investor recounted.

Instead, the source added, the LCDX traded up a little.

"People who were going long the bank loan market, against high yield, were apparently offsetting the number of people who, for whatever reason, wanted to go short the bank loan market," the investor said.

"It's tough to short the bank loan market in a world where nothing too terrible is happening, given that bank loans are one of the more protected assets.

"It's amazing that they're apparently taking billions of this stuff in an apparently zero-volatility world."

On the face of it, the investor said, in a market that is as healthy as the leveraged loan market currently seems, you want to be long cash product because it keeps paying.

"When you hedge you're just cutting your upside," the investor asserted.

However, the source did offer one thesis that ran somewhat counter to the above scenario.

"It's possible that you could set up a long bank loans/short high yield bet, offsetting each other fairly exactly in terms of total cash payments, so that it's in place but you're not suffering a carry issue of any great note," the investor explained.

"That would be reasonably intelligent because the next big market move is clearly down, not up.

"And if it takes two years to get there, so what?"

Reliant refinancing

Houston-based Reliant Energy, Inc. announced Thursday that it plans to put in place a new $500 million revolver and a $250 million pre-funded letter of credit facility, in a transaction that is expected to be completed in June.

Proceeds will be used to replace the company's existing revolver and pre-funded letter of credit facilities

In addition Reliant Energy announced Thursday that it plans to sell $1.25 billion of senior unsecured notes in seven-year and 10-year tranches, in a transaction also expected to close in June.

Proceeds will be used to fund the tender for the company's combined $1.1 billion of 9¼% and 9½% senior secured notes.

Goldman Sachs & Co., Deutsche Bank, JP Morgan and Merrill Lynch & Co. are running the tender.

Reliant Energy provides electricity and energy services to retail and wholesale customers in the U.S.

Charter, Tribune active

Late Thursday a bank loan trader said that trading during the session had been slowed by a portfolio auction.

However the source reported trading the bank loan paper of Charter Communications, Inc., which was flat on the day.

The source also said that the Tribune Co.'s term loan B traded up slightly on Thursday, and marked it going out par 1/8% bid, par 3/8 offered.

Spirit Finance sets pricing

Back in primary news, Spirit Finance Corp.'s new $850 million six-year term loan B is expected at Libor plus 300 bps.

The deal was launched at a bank meeting on Wednesday.

Credit Suisse is the lead arranger on the deal.

Proceeds will be used to help fund the buyout of Spirit by a consortium that includes Macquarie Bank Ltd., Kaupthing Bank hf. and other independent equity participants.

Under the transaction agreement, the consortium is buying Spirit in a transaction valued at $3.5 billion, including $1.9 billion of assumed debt. Spirit stockholders will get $14.50 per share in cash.

Spirit is a Scottsdale, Ariz., real estate investment trust focused on single-tenant, operationally essential real estate.

Boyd closes on revolver

Boyd Gaming Corp. said it completed a $4 billion revolving credit facility on Thursday.

The facility matures May 24, 2012 and initially carries interest at Libor plus 100 bps. Rates can vary from Libor plus 62.5 bps to Libor plus 162.5 bps, depending on a grid. The unused fee is 20 to 35 bps.

Bank of America, Citigroup, Deutsche Bank, JPMorgan, Merrill Lynch, Wachovia and Wells Fargo are joint leads.

The Las Vegas-based gaming company will use proceeds to finance development initiatives, reduce interest costs and provide greater financial flexibility.

Dynegy completes $750 million add on

Dynegy Holdings Inc. announced completion of a refinancing including $750 million of new bank debt (Ba1/BB-).

The Houston-based electric company added $300 million to its revolver, increasing the total size to $1.15 billion, and $450 million to its synthetic letter-of-credit facility, for a new amount of $850 million.

Interest on both tranches is Libor plus 150 basis points, based on the company's existing ratings.

The revolver matures in April 2012 and the synthetic letter-of-credit facility in April 2013.

The tranche sizes were adjusted and the total amount increased from the originally planned $150 million add on to the revolver and $500 million for the synthetic letter-of-credit facility.

Both are available for general corporate purposes.

JPMorgan and Citigroup were leads.

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