Hercules meeting set; rally takes a breather but optimism remains

By Paul A. Harris and Sara Rosenberg

New York, Nov. 22 - The leveraged loan market heard word that Hercules Inc.'s bank meeting is set for Monday afternoon in New York. Meanwhile the recent rally in the secondary took a breather but market participants remained confident about the outlook.

Credit Suisse First Boston and Wachovia Securities are the lead banks on the loan for Wilmington, Del. chemical company Hercules. The facility consists of a $150 million revolver and a $200 million term loan B.

Although official pricing was not heard, one market source told Prospect News that the B piece will be 325 basis points over Libor.

Hughes Electronics Corp.'s new deal, which broke in the secondary on Thursday at 99 5/8 to 99 7/8, experienced a lot of trading activity on Friday at around 99 7/8, according to a trader.

The recently launched $1.3 billion credit facility (Ba3) consists of a $700 million revolver with an interest rate of Libor plus 400 basis points and an $800 million loan B with an interest rate of Libor plus 450 basis points.

Proceeds will be used to refinance existing debt.

Bank of America and Salomon Smith Barney are the lead banks on the deal.

Hughes is an El Segundo, Calif. provider of digital entertainment, information and communications services and satellite-based private business networks.

Nextel Communications Inc.'s term B and C bank debt settled a little on Friday with quotes around 92¾ after trading around 93 on Thursday, a trader told Prospect News.

Charter Communications Inc.'s bank debt though was said to be holding in at 841/2, 851/4, according to a trader. On Thursday, there were a couple of trades that took place at 85, the trader added.

Meanwhile, market participants seem fairly optimistic about the recent rally that has been apparent in the secondary bank loan market despite the fact that it "took a little breather today," a trader said. Sometimes a rally stalls because sellers have entered the market, he explained, adding that it doesn't seem to be the case here.

"[The] recent trade up has really got some legs to stand on," the trader concluded.

Generally speaking, the bank loan market has been up as a whole over the past couple of days. One trader had previously attributed this improvement to inflows in the bond markets, CLO's ramping up, some fixed income guys buying bank debt and primary deals being pulled or hiked up - all of it creating a new supply/demand equation that is causing more aggressive bids to take place.

Also Friday, National Waterworks Inc. closed on its $325 million credit facility (B1/BB-) in conjunction with the completion of the acquisition of U.S. Filter Distribution Group Inc. Goldman Sachs, JPMorgan and UBS Warburg were the lead banks on the deal.

The loan consists of a $75 million six-year revolver with an interest rate of Libor plus 300 basis points and a $250 million seven-year term loan B with an interest rate of Libor plus 400 basis points.

National Waterworks is a Palm Desert, Calif. provider of water and wastewater systems.

One market source told Prospect New Friday that low rates have caused Libor floors to come into play in recent deals.

"They're coming out in droves," the source said. "Constar, National Waterworks, Wackenhut, NDCHealth and some of the energy sector deals all have had Libor floors, which is a relatively recent phenomenon.

"These companies struggled to ultimately get people to sign up for them. And the Libor floor was one more yield enhancement outside of the price flex that got them over the hump."

The source said that the fact Libor floors have lately come into use is a reliable indicator that "liquidity is tight and selective."

Another official, however, said that with Libor at 1.4%, something has to happen to sweeten the deals.

"It is so tough to like the asset class if you're at 1.4 Libor going down," the source said. "It's so much easier if you have a Libor floor in, with a 2-type handle. I think Donnelley might have had 2¾%.

"I think it makes a big difference psychologically to the buyers and I don't think it costs a ton to the sellers. It's still pretty cheap financing even with a Libor floor.

"I was actually a little surprised that Libor floors went away over the summer. But I guess it was just a frothy market.

"These days most people look at the history of interest rates and decide that whatever they finance at it's way less on a nominal basis than it usually is."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.