Century Theatres, Pinnacle add-on break; Movie Gallery drops; HealthSouth spread expected at high end

By Sara Rosenberg

New York, Feb. 28 - Century Theatres Inc. and Pinnacle Foods Group Inc. saw their new bank debt free for trading on Tuesday, with the Century Theatres' term loan quoted atop 101 and the Pinnacle add-on quoted in the high-101 to 102 type context.

Also in the secondary, Movie Gallery Inc.'s term loan fell in trading as the company was faced with a rating downgrade and a report accidentally quoted company leverage at higher-than-accurate levels, creating some concern before a correction could be released.

In primary happenings, HealthSouth Corp.'s senior secured term loan is expected to end up with pricing at the high-end of price talk, although no official word on final pricing has emerged as of yet.

Century Theatres allocated its credit facility Tuesday, with the $360 million term loan tranche quoted at 101 bid, 101¼ offered from the break until the close, according to a trader.

The term loan is priced with an interest rate of Libor plus 187.5 basis points and can step down to Libor plus 175 basis points, based on the company meeting a specified leverage test. During syndication, pricing on the term loan was reverse flexed from Libor plus 200 basis points due to strong investor interest. The step down was always part of the credit agreement.

Century Theatres' $435 million credit facility (Ba3/B+) also contains a $75 million revolver that is priced with an initial interest rate of Libor plus 200 basis points.

Morgan Stanley and Bank of America are the joint lead arrangers on the deal, with Morgan Stanley acting as bookrunner.

Proceeds from the credit facility will be used to refinance existing debt and fund a sizable dividend payment to the owners.

Century Theatres is a San Rafael, Calif., regional theatrical exhibition company.

Pinnacle add-on nears 102

Also freeing for trading was Pinnacle Foods' $140 million tack-on to its term loan B (B+), with levels quoted at 101¾ bid, 102 offered, according to trader.

The company's existing term loan B debt had been quoted in the 101½ bid, 102 offered context prior to this additional debt hitting the secondary so now the whole upsized tranche has moved up slightly on the bid side with tighter levels, the trader explained.

The incremental bank debt is priced with an interest rate of Libor plus 325 basis points.

Deutsche and JPMorgan acted as the lead banks on the deal, with Deutsche the left lead.

Proceeds from the add-on will be used for acquisition financing.

Pinnacle Foods is a Cherry Hill, N.J., branded food products company.

Movie Gallery softer on downgrade

In other secondary news, Movie Gallery's term loan dropped by about a point or so as the company's debt instruments and corporate credit rating were downgraded by Standard & Poor's Ratings Services and the accidental publishing of false leverage numbers created some panic, according to a trader.

The term loan closed Tuesday's session quoted at 92¼ bid, 93 offered by one trader and a little wider at 92 bid, 93 offered by a second trader. By comparison, on Monday, the paper was heard to be at 93 bid, 94 offered, although with no trading taking place it was hard to tell if those levels were real. Prior to Monday, the bank debt was quoted at 93¾ bid, 94½ offered.

On Tuesday, S&P lowered its corporate credit and bank loan ratings on Movie Gallery to CCC+ from B- and its unsecured note rating to CCC- from CCC.

Furthermore, S&P lowered its bank loan recovery rating to 5 from 3, indicating that lenders can expect negligible recovery of principal (0%-25%) in the event of a payment default or bankruptcy.

S&P said that the downgrade reflects growing concern that the company's operating results will remain pressured in 2006 by weak industry fundamentals.

And, the company's need to amend its credit facility for the second time in less than one year is indicative of pressures on its current and near-term performance, S&P added.

Also creating some strain on the bank debt was the release of a report that mistakenly put Movie Gallery's leverage at almost twice its actual level, and although a correction was later published, some damage had already been done.

"S&P put out a piece talking about leverage. They quoted total leverage at around 9x and I think it's really around 4x. They put out a revision. Obviously, the company has other problems so weakening wasn't just due to that report but I think it had some affect," the trader said.

Movie Gallery is a Dothan, Ala.-based operator of video retail stores.

HealthSouth projected at high end

As for primary updates, HealthSouth's $2.05 billion term loan B is anticipated to see pricing wind up at the high end of the recently upward revised price talk as some market players believe that it will take that type of spread to push the transaction to full subscription.

"Pricing is likely to fall out at 325. It's not official yet but it's not going to get done at 300," a market source told Prospect News.

Last week, HealthSouth increased price talk on its term loan B to the Libor plus 300 to 325 basis points range from original price talk at launch of Libor plus 250 basis points.

Sources had attributed the need for higher spreads to the deal being unrated as it causes some people to view the transaction as high risk and it makes it difficult for CLO's to get involved.

The syndicate did build in pricing step downs in the term loan credit agreement that are based on ratings so that once the deal is rated and the primary risk is gone, the company can get a cheaper rate.

HealthSouth's $2.55 billion senior secured credit facility also contains a $500 million revolver.

J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Merrill Lynch & Co. are joint lead arrangers and joint bookrunners on the senior secured credit facility, with J.P. Morgan on the left.

The company is getting the new senior secured credit facility as part of a recapitalization plan under which its will repay substantially all of its existing debt.

HealthSouth is also currently in-market with a $1.3 billion senior unsecured interim term loan that is priced with an initial interest rate of Libor plus 450 basis points. After six months, the interest rate will increase by 100 basis points and then will increase by 50 basis points every three months thereafter.

This interim loan will be reduced in size after the company completes its proposed $300 million convertible perpetual preferred stock offering.

If the recapitalization transactions are not completed, HealthSouth will use the net proceeds from the convertible preferred stock issuance to repay a portion of its outstanding senior unsecured debt.

HealthSouth has already received the required consent from lenders under its $200 million senior unsecured term loan and $355 million senior subordinated credit agreement to go ahead with its recapitalization plan.

Merrill Lynch & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. are joint bookrunners on the unsecured interim loan, with Merrill Lynch on the left.

Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Wachovia Capital Markets LLC are co-managers on both the senior secured credit facility and the senior unsecured interim loan.

HealthSouth is a Birmingham, Ala., provider of outpatient surgery, diagnostic imaging and rehabilitative health care services.

Supervalu readies second round

Supervalu Inc. has now turned its attention to the retail syndication of its credit facility being that the agent process has pretty much wrapped up with nearly $3 billion in commitments received for the pro rata tranches, according to a market source.

The retail launch is hoped to kick off shortly, with the deal possibly falling into the category of March business although firm timing is unclear at this time, the source said. Both banks and institutional lenders will be approached at that meeting.

Supervalu's $4 billion credit facility consists of a $2 billion revolver talked at Libor plus 150 basis points with a 40 basis point undrawn fee, a $1.25 billion term loan A talked at Libor plus 150 basis points and a $750 million term loan B with price talk still to be determined.

The upfront fee is 35 basis points across the revolver and term loan A for minimum tickets of $200 million.

Royal Bank of Scotland is the lead arranger on the deal that will be used by the Eden Prairie, Minn., supermarket operator to buy some assets from Albertson's Inc., including the operations of Acme Markets, Bristol Farms, Jewel-Osco, Shaw's Supermarkets, Star Markets, and Albertsons banner stores in the Intermountain, Northwest and Southern California regions.

Supervalu's total consideration is about $12.4 billion in stock, cash and the assumption of about $6.1 billion of Albertson's debt.

Gentiva closes

Gentiva Health Services Inc. closed on its new $445 million senior credit facility (Ba3/B+) consisting of a $75 million six-year revolver with an initial interest rate of Libor plus 225 basis points and a $370 million seven-year term loan with an interest rate of Libor plus 225 basis points.

Pricing on the term loan can drop to Libor plus 200 basis points if total leverage is less than 3.5x, with a further reduction to Libor plus 175 basis points if total leverage falls below 3x. These potential step downs in the spread were added to the deal during syndication.

Lehman acted as the lead bank on the deal that was used to help fund the now completed acquisition of The Healthfield Group Inc. for $454 million.

Gentiva is a Melville, N.Y.-based provider of comprehensive home health services. Healthfield is an Atlanta-based provider of home health care and hospice.

Central Garden & Pet closes

Central Garden & Pet Co. completed its acquisition of Farnam Cos. Inc. for about $287 million, plus $4 million for the purchase of related real property, according to a company news release.

To help fund the purchase and to refinance existing debt, Central Garden & Pet got a new $650 million credit facility (Ba2/BB) consisting of a $350 million five-year revolver and a $300 million seven-year term loan B, with both tranches priced at Libor plus 150 basis points.

During syndication, pricing on the term loan B was reverse flexed from Libor plus 175 basis points.

JPMorgan, CIBC and Bank of America acted as the lead banks on the deal, with JPMorgan the left lead.

Central Garden & Pet is a Walnut Creek, Calif., marketer and producer of products for pets, lawns and gardens. Farnam is a manufacturer of health care products primarily for horses, household pets and livestock.

Blackboard closes

Blackboard Inc. closed on its $70 million credit facility consisting of a $10 million five-year revolver at Libor plus 225 basis points with a 50 basis point commitment fee and a $60 million six-year term loan B at Libor plus 225 basis points, according to an 8-K filed with the Securities and Exchange Commission Tuesday.

During syndication, the term loan B was downsized from $70 million.

Credit Suisse acted as the lead arranger on the deal that was used to fund the acquisition of e-learning company, WebCT, in a cash transaction for $180 million.

Blackboard is a Washington-based provider of enterprise software applications and related services to the education industry.

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