Waste Connections' B loan reverse flexes ahead of Thursday's meeting on strong institutional demand

By Sara Rosenberg

New York, Sept. 29 - Waste Connections Inc.'s $150 million seven-year term loan B has flexed down by 50 basis points due to overwhelming demand - even though it has not yet officially launched to the bank loan market, according to a sell-side source.

The offering has seen "overwhelming oversubscription," the source said.

Initially the tranche was talked at Libor plus 250 basis points, however, it is now priced at Libor plus 200 basis points, according to a syndicate source.

"Institutional investors came in before the bank meeting. The B is already subscribed the syndicate source said. "The B received very strong ratings from both agencies. Ba2 was an upgrade and BB+ was an upgrade as well."

On Monday, Moody's Investors Service announced that it upgraded Waste Connections' existing $425 million senior secured revolving credit facility due 2005 to Ba2 from Ba3.

The upgrade was prompted by the relative stability and economic resilience of the company's revenues and profitability during a weak economy, its improved cash generation and improved leverage, and the maintenance of its business franchise mix despite significant growth though acquisitions, Moody's said.

Measured as total debt to revenues, leverage was approximately 1.0 times for the 12 months ending June 30, down from approximately 1.3 times for a comparable period a year ago. Total debt to free cash flow, measured as cash flow from operations less capex, decreased to approximately 7.1 times for the 12 months period ending June 30, from approximately 8.0 times for a comparable period a year ago. Measured as EBIT to interest expense, coverage improved to approximately 4.2 times for the 12 months ending June 30 from approximately 3.6 times for a comparable period a year ago. Similarly, fixed charges coverage, inclusive of operating leases and the current portion of the long-term debt, increased to approximately 3.5 times for the 12 months ending June 30 from approximately 3.1 times a year ago, Moody's said.

On Friday, S&P announced that it upgraded Waste Connections including raising its $425 million revolving credit facility due 2005 to BB+ from BB.

S&P said the upgrade reflected Waste Connections' improving financial profile as evidenced by its attractive profitability, increased cash flow generation and management's disciplined growth strategy.

The rating revision is supported by Waste Connections' demonstrated operating strength, which benefits from the company's unique business strategy including a focus on secondary markets, and significant operations under exclusive franchisee contracts.

Despite Waste Connections' relatively modest scale of operations compared with those of leading industry participants, its operating profit margins of about 35% are impressive and the highest in the industry. Credit protection measures are sufficient for the rating, with funds from operations to total debt (adjusted for capitalized operating leases) at about 24%, EBITDA interest coverage approximately 5.5x, and debt to capital in the low 50% area, for the 12 months ended June 30, 2003, S&P said.

The syndicate source went on to say that, in addition to the favorable ratings, market technicals probably played a part in creating strong demand for the paper as well.

"Ongoing investor appetite is driving strong demand for paper in both the primary and secondary loan markets," a Banc of America Securities research report said. "Supporting this point, the Banc of America High Yield Loan Index (BASHYLI) has returned a healthy 4.76% YTD. With Libor hovering near record lows at 1.14%, the majority of the return in the BASHYLI comes from the Libor spread and appreciation in the secondary loan prices."

The Folsom, Calif. solid waste company's $500 million senior secured credit facility is expected to launch via a bank meeting on Thursday. Fleet and Deutsche are the joint lead arrangers on the deal. There are also four other agent banks involved in the facility including Wells Fargo, Credit Lyonnais, Union Bank of California and LaSalle Bank.

Besides the term loan B, the facility also contains a $350 million five-year revolver with an interest rate of Libor plus 200 basis points.

Proceeds will be used to refinance the existing revolver, which was set to mature in May 2005. Asked why the deal is being brought to market now, a company spokesman responded: "We chose to get it done and get it behind us. The market seems to be strong right now."

Meanwhile, Pinnacle Foods Corp.'s credit facility is now expected to launch sometime in October and the initially anticipated structure and size may see some changes prior to the bank meeting, a source close to the deal told Prospect News on Monday.

The loan was previously expected to be sized at $225 million, with a $170 million term loan B and $55 million of pro rata bank debt.

"My guess is a lot of these deals are flexible because both the bond and the bank loan markets are strong so they're just considering if they should move some money around based on where they'll get the best reception," a market professional said.

JPMorgan and Deutsche are the lead banks on the deal that will be used to help fund the previously announced acquisition of Pinnacle Foods from Hicks, Muse, Tate & Furst Inc. by JPMorgan Partners in partnership with C. Dean Metropoulos in a transaction valued at $485 million.

It is expected that there will be a high yield bond offering as well to help fund the transaction, with JPMorgan and Deutsche acting as joint bookrunners, according to sources.

Pinnacle Foods is a Cherry Hill, N.J. manufacturer and marketer of branded food products formed by Hicks, Muse, Tate & Furst and C. Dean Metropoulos in 2001 to acquire Swanson frozen foods, Vlasic pickles and condiments and Open Pit barbeque sauce from Vlasic Foods International.

Now that Cinram International Inc.'s credit facility was reworked on Friday, moving $200 million out of the term loan B into various different tranches, the assumption around the marketplace is that the deal is pretty much done, according to a market professional. However, the calls to the syndicate to confirm this information were not returned prior to press time.

The $1.2 billion facility now consists of a $100 million second lien term loan C with an interest rate of Libor plus 575 basis points (B1), a $150 million revolver with an interest rate of Libor plus 300 basis points (Ba3/BB), a $250 million term loan A with an interest rate of Libor plus 300 basis points (Ba3/BB) and a $700 million term loan B with an interest rate of Libor plus 375 basis points (Ba3/BB).

Previously the deal consisted of a $150 million revolver, a $150 million term loan A and a $900 million term loan B. About two weeks ago, the term loan B had been flexed up to Libor plus 375 basis points from Libor plus 325 basis points and the and investors were offered 50 basis points upfront as opposed to the original offer price of par.

Citigroup and Merrill Lynch are joint lead arrangers on the deal, with Citigroup also acting as administrative agent and Merrill acting as syndication agent. Bank One, SG Cowen and GE Capital have signed on to the deal as documentation agents.

Proceeds will be used to fund the acquisition of AOL Time Warner Inc.'s DVD and CD manufacturing and physical distribution businesses for a purchase price of approximately $1.05 billion in cash. The acquisition is expected to close during the fall.

On a stand-alone basis, the acquired businesses would be expected to generate approximately $1.1 billion of revenues and $230 million of EBITDA for the fiscal year ended Nov. 30, 2003, after giving effect, on a pro forma basis, to the pricing reflected in the new supply and physical distribution agreements, according to a news release.

Cinram is a Toronto-based provider of pre-recorded multimedia products and logistic services.

The acquisition of Seminis Inc. by Fox Paine & Co. LLC from Savia SA de CV was completed, according to a news release. In connection with the acquisition, Seminis obtained a $250 million credit facility (B1/BB-), consisting of a $60 million revolver with an interest rate of Libor plus 300 basis points and a $190 million six-year term loan with an interest rate of Libor plus 350 basis points.

Citigroup acted as lead arranger on the Oxnard, Calif.-based vegetable and fruit seed company's deal.

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