Extra cash in investors pockets from loan repayments leads to firmer secondary, tighter spreads

By Sara Rosenberg

New York, April 9 - An influx of cash into bank loan investors' hands is leading to a firming up of the secondary market and contributing to tighter spreads in the primary market. The increase in available cash is coming from a rise in the number of deals hitting the high-yield bond market with proceeds earmarked for the repayment or reduction of bank debt.

For example, on April 3, Huntsman International LLC, a Salt Lake City petrochemical company, priced $150 million of senior notes due 2009 with proceeds going towards repaying outstanding indebtedness under the senior secured term loan and revolver.

Resolution Performance Products LLC, a Houston epoxy resins firm, completed its offering of $175 million senior secured second priority notes due 2010 on Wednesday and proceeds were used to repay bank debt and for general corporate purposes.

Allied Waste Industries Inc. priced $450 million senior notes due 2013 on April 4 with proceeds going towards repaying outstanding indebtedness under the Scottsdale, Ariz. waste services company's existing credit facility.

And, just to add one more name to the list, AES Corp., an Arlington, Va. energy company, plans on repaying $475 million of borrowings under its senior secured credit facility with proceeds from an estimated $1 billion offering of new second priority senior secured notes.

"This puts cash back into the managers' hand," a market professional explained.

In the primary, "spreads seem to be coming in a little bit," the professional said, adding that this new trend is also being spurred on by the "better quality names in the market".

"In the secondary market names have improved a little bit because of the extra cash. There's more money to invest and it seems to be showing up in the secondary."

"I think it's been slowly but surely working its way up," a trader told Prospect News in regards to secondary performance, agreeing that the extra cash in the market is a stimulus behind this improving performance.

To support this notion that secondary names are stronger, the trader pointed to the recent performance of Nextel Communications Inc., Charter Communications Inc. and Peabody Energy.

Nextel's term loan B and term loan C were quoted around 98 7/8 on Wednesday, up about 1/8 from the previous day's levels.

Nextel is a Reston, Va. wireless company.

Charter's term loan B was quoted with a 90 bid, 91 offer, basically in line with previous quotes, but "still strong", the trader said.

Charter is a St. Louis cable company.

Peabody Energy Corp.'s new loan is now being quoted at par ½ bid, par ¾ offer, according to a second trader. Not too long ago, the loan broke in the secondary at around par ¼ bid, par 3/8 offer.

Peabody Energy is a St. Louis coal company.

Overall though, activity was relatively quiet in the secondary market, according to a third trader, as the primary's two new deals took the focus of the day.

Allied Waste launched its $3 billion credit facility (Ba3/BB/BB) consisting of a $1.5 billion five-year revolver with an interest rate of Libor plus 300 basis points and a $1.5 billion seven-year term loan with an interest rate of Libor plus 325 basis points. JPMorgan and Citibank are the lead banks on the deal with Credit Suisse First Boston, Deutsche and UBS Warburg participating as well.

Proceeds will be used to refinance existing debt.

International Steel Group launched a $1 billion senior credit facility (Ba2/BB+) consisting of a $300 million two-year term loan A, a $300 million three-year revolver and a $400 million four-year term loan B. Pricing on the pro rata ranges from Libor plus 275 to 325 basis points and pricing on the term B ranges from Libor plus 325 to 375 basis points, sources said.

UBS Warburg, Goldman Sachs and CIT are the lead banks on the deal that will be used by the Cleveland steel company to help fund the acquisition of Bethlehem Steel Corp. assets and for working capital.

Meanwhile, Hayes Lemmerz International Inc.'s proposed exit financing facility will not launch till the very end of April, if it launches in April at all, according to a syndicate source. "We don't have a date nailed down yet," the syndicate source added.

Timing on the deal has been fluid as the company was working on getting approval of its plan of reorganization from existing creditors. However, this hurdle was cleared on Wednesday as the company announced that it reached an agreement with pre-petition creditors on a reorganization plan and set a confirmation hearing for May 7.

Under the terms of the new plan, holders of senior note claims will receive $13 million in cash and 44.9% of the new common stock, and holders of unsecured claims will receive 2% of the new common stock. Holders of pre-petition secured claims will receive $453.5 million in cash, $25 million in new senior notes and 53.1% of the new common stock.

Despite the revisions to the plan of reorganization, no changes have been made to the proposed exit financing facility, according to the syndicate source. The exit financing facility is anticipated to total $575 million, with a $450 million term B and $125 million pro rata.

Citibank and Lehman Brothers are the lead banks on the Northville, Mich. auto parts maker's proposed loan.

Hayes Lemmerz and its subsidiaries located in the United States and one subsidiary in Mexico filed voluntary petitions for reorganization under Chapter 11 on Dec. 5, 2001.

Constellation Brands Inc. closed on its acquisition of BRL Hardy Ltd. on Wednesday. In connection with this acquisition, the Fairport, N.Y. alcoholic beverages company obtained a $1.6 billion credit facility, consisting of an $800 million 51/2-year term loan B with an interest rate of Libor plus 275 basis points, a $400 million five-year term loan A with an interest rate of Libor plus 225 basis points and a $400 million five-year revolver with an interest rate of Libor plus 225 basis points.

JPMorgan, Citibank and UBS Warburg were the lead banks on this credit facility.

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