Valor scraps IDS sale, plans $1.74 billion loan; Charter slips but little market concern

By Paul A. Harris

St. Louis, Oct. 7 - Valor Communications Group led news in the leveraged loan market Thursday, opting to take out a $1.74 billion credit facility in lieu of its previously planned recapitalization based on an income deposit securities offering.

Meanwhile Doane Pet Care was heard to be in the market with a new $230 million credit facility.

And Bally Total Fitness upped the pricing of its $175 million term loan B by 25 basis points and also kicked in some call protection.

Meanwhile in the aftermarket the loan paper of Charter Communications more or less held water after the company announced that it will miss earlier estimates of its full year cash flow.

Surprisingly strong market

But overall a buy-side source pointed to two offerings recently released for trading, and told Prospect News that their reception in the secondary signals the strength of the market.

First was Rockwood Specialties Group Inc.'s $225 million term loan B add-on, which hit the secondary on Wednesday at par ¾ bid, 101¼ offered.

The add-on is priced at Libor plus 250 basis points, in line with pricing on the existing term loan B, and is via Credit Suisse First Boston, UBS and Goldman Sachs.

"That's an example of the strength of the market," said the investor. "You have a first lien and a second lien, and a month after the deal comes they take out the second lien with some more first lien. So the pad underneath you on the first lien side gets smaller, and you don't change price."

Also there was Headwaters Inc.'s $850 million credit facility which broke for trading on Wednesday, with both term loans trading actively at strong levels.

"It went to 101.5 bid, 101.75 offered, and $80 million traded on the first day," remarked the investor.

"And the fundamentals really aren't incredibly good.

"Clearly prices have gone up in the past two weeks," the buy-sider added. "It has been a surprisingly strong market. A lot of things are trading back to the mid and higher 101s.

"I'm looking at a ton of deals, all at the same time, none of which is coming imminently.

"It feels like the calendar is pretty heavy. I think that it's the same kind of calendar that it was a month and a half ago, gearing down to where you don't see that many double-B deals.

"We're sort of tracking the high-yield market, where most of the deals are triple-C, most of the bank loans are single-B. That's not surprising. It's the nature of the market.

"The level, in bank loans, is starting to creep up a little bit. For a long time you could count on bank loans being two-times cash flow or less. But they're creeping into the threes and fours as deal multiples are high and the equity percentages seem a little bit lower.

"The market is strong, technically. And I think that until either Libor starts to turn down or the economy looks weaker I don't think it will be overwhelmed with supply."

Valor plans $1.74 billion loan

On Thursday Prospect News heard that Valor Communications Group has opted to obtain a $1.74 billion credit facility, abandoning its attempt to go public via an $875 million offering of income deposit securities (IDS).

Bank of America is the lead arranger for the new loan. A bank meeting is set for Tuesday, Oct. 12.

The new credit facility will be comprised of a $1.3 billion term loan B, a $205 million second lien tranche and a $100 million revolver.

Doane sets meeting for $230 million

Meanwhile a bank meeting is scheduled to take place Wednesday for Brentwood, Tenn.-based Doane Pet Care's $230 million senior secured credit facility, coming to market via Credit Suisse First Boston.

The facility will be comprised of a $195 million term loan and a $35 million revolver. Both tranches mature in five years and are expected to be priced at Libor plus 450 basis points.

"The new agreement will provide additional financial flexibility by extending the average maturity of our capital structure while maintaining our liquidity and lowering our debt service costs," Philip Woodlief, vice president and chief financial officer of Doane Pet Care, stated in a Thursday press release.

Bally raises pricing

And Chicago-based Bally Total Fitness is increasing the pricing on its $175 million term loan B (B2/B) to Libor plus 475 basis points from Libor plus 450 basis points. In addition they are adding call protection to the term loan B that applies only in the context of a refinancing.

J.P. Morgan Securities Inc. is the lead arranger.

There had been strong speculation in the market previously that Bally would raise pricing but earlier in the week buyside sources switched and said the deal looked like it would get done at the original levels.

The term loan will increase the company's liquidity by $75 million, which will be used for general corporate purposes.

Bally Total Fitness is a Chicago-based commercial operator of fitness centers.

Charter holds in

Although secondary market sources conceded that Charter Communications Inc.'s announcement that it would miss its full-year cash flow estimates because of higher expenses for programming and for customer service caused its loan paper to initially slip, they insisted that the move was no big deal.

"It doesn't amount to a hill of beans," asserted a buy-side source.

"It traded down a tweak, 99.25 on the B loan. That's down a quarter.

"Charter is one of the more volatile names that people feel like trading on news. So the news is out and it tweaks down slightly.

"It doesn't really change anything.

"If they don't do an equitization of that company at some point, they have a real problem, no matter what.

"And if they do an equitization then the somewhat weak numbers that you're seeing right now don't matter."

Later in the day a trader had more or less the same story, Charter softened a little and more or less rallied to right back where it was.

Denny's rises

The trader also had Denny's term loan B trading close to 102, up 0.125.

"It just keeps inching up," the source commented.

Also, said the trader, Graham Packaging is still relatively well bid, citing the company's first-lien loan 101 bid, 101.75 offered.

"It doesn't necessarily reflect a ton of activity, but we know there are better buyers out there."

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