Hercules shows strength as new loan breaks into the secondary at par plus levels

By Sara Rosenberg

New York, Dec. 17 - Hercules Inc. broke in the secondary bank loan market on Tuesday with a par bid and a par and a ¼ offer on the term loan B, according to a trader. This comes on the heels of Monday's debut of Del Monte Foods Inc. in the secondary, at levels that were close to 101.

"It traded a fair amount today," a trader said of Hercules' bank debt.

Hercules launched the $350 million credit facility about three weeks ago. The loan consists of a $150 million four-year revolver with an interest rate of Libor plus 275 basis points and a $200 million 41/2-year term B with an interest rate of Libor plus 325 basis points.

Credit Suisse First Boston and Wachovia are the lead banks on the Wilmington, Del. chemical company's deal that will be used to retire the existing credit facility and short-term debt, and for general corporate purposes.

Allocations for Del Monte's credit facility were given out Monday and trading immediately began on the paper that day, with the loan quoted around a par and 5/8 bid and par and 7/8 offer, according to a fund manager.

"That's pretty good for right off the bat jumping up to those levels," the fund manager said.

Del Monte's loan went through some restructuring as the bank deal was reduced in size following a successful and upsized bond deal.

The bond offering, which priced on Thursday, was upsized to $450 million from $300 million. The senior subordinated notes that are due Oct. 1, 2012 priced at par to yield 8 5/8%. Price talk was for a yield of 8½%-8¾%. Morgan Stanley, JP Morgan, Banc of America Securities and UBS Warburg were joint bookrunners on the bonds.

Meanwhile, the bank loan was reduced to a total size of $1.245 billion from $1.4 billion. The facility consists of a $300 million six-year revolver (down from $350 million) with an interest rate of Libor plus 350 basis points, a $195 million six-year term loan A (down from $250 million) with an interest rate of Libor plus 350 basis points, approximately €45 million eight-year term loan B with an interest rate of Libor plus 375 basis points and a $705 million eight-year term loan B with an interest rate of Libor plus 375 basis points, according to the fund manager.

In addition, prior to the reductions in size, the $300 million senior secured floating rate notes that were originally priced with an interest rate of Libor plus 425 basis points were essentially moved to the term loan B tranche and pricing on the term loan B was flexed down to 375 basis points from 400 basis points.

"They reduced senior secured debt and put more subordinated debt so it works well for us," the fund manager said. "[And] the $300 term A-1 is basically gone because the bonds did get done."

Bank of America, JPMorgan Chase, UBS Warburg, Morgan Stanley and Bank of Montreal are the lead banks on the deal that will be used to help fund the merger with certain H.J. Heinz Co. businesses.

Del Monte is a San Francisco, Calif. processed food company.

In follow-up primary news, Gate Gourmet's $150 million six-year term loan B is fully syndicated now that the credit facility was reworked last week, according to one fund manager who said that he received a message Tuesday morning stating that there are $165 million in commitments for the tranche.

Besides the term B, the credit facility contains a $50 million five-year revolver, a CHF88 million ($58.6 million) six-year term loan B and a $73.3 million five-year euro-denominated term loan A. Pricing on the term loan B and the Swiss franc term loan B was flexed up last week by 200 basis points to Libor plus 650 basis points. Pricing on the revolver and the euro-denominated term loan A was also flexed up last week by 200 basis points to Libor plus 600 basis points, the fund manager said.

"[Gate Gourmet] is now doing well. People have gotten interested in it," the fund manager said. "It looks pretty juicy."

When the credit facility was first launched in late November, it was met with some investor skepticism. "It's kind of interesting for them to be trying to bring a deal like that with air travel the way it is," a fund manager told Prospect News when the deal first hit the primary. "Airlines are cutting flights, and if not flights, they're cutting meals. Sky Chefs (an airline catering company that already has a loan in the secondary bank loan market) is trading in the high 70's, low 80's. Why buy a new loan at 98½ when I could buy this other loan for 18 points cheaper?"

Investor appetite for a larger discount was addressed last week as well, as the syndicate changed the issue price to 96 from 981/2, giving "a little more boost to the yield," the fund manager said.

Other terms of the deal include a Libor floor of 3% and call protection of 102 in the first year and 101 in the second year.

Citibank and Credit Suisse First Boston are the lead banks on the deal that will be used to help fund the leveraged buyout of the company by Texas Pacific Group from Swissair Group.

Gate Gourmet is an airline catering company.

Another primary deal that has recently undergone some structural changes is O'Charley's Inc.'s $285 million credit facility. Pricing on the $150 million six-year term loan B was flexed up to Libor plus 375 basis points from Libor plus 350 basis points. Furthermore, the amortization schedule on the term loan was changed to 10% due for the first five years and the remaining 50% due in the sixth year from an original schedule of 1% due in the first five years and the remaining balance due in the sixth year, according to a fund manager.

"That's kind of nice," the fund manager said in regards to the new amortization schedule. "Quicker repayment."

The facility also contains a $135 million four-year revolver with an interest rate of Libor plus 225 basis points.

Proceeds will be used to help fund the acquisition of Ninety Nine Restaurant & Pub for approximately $160 million. The acquisition is expected to close in the first quarter of 2003.

Some hesitations involved with this deal include the pricing war in the restaurant industry right now and the fact that O'Charley's is a regional chain. "McDonald's and Burger King's pricing war is probably taking some sales away from O'Charley's," the fund manager said. "Although it's not the same quality of food, it's cheaper. [Also], it's a regional restaurant chain. They're diversifying a little with the acquisition but they're not diversified across the country."

Wachovia Bank is the lead bank on the Nashville restaurant chain's deal.

PerkinElmer Inc.'s term loan B was reduced in size to $320 million from $345 million and pricing was flexed up to Libor plus 400 basis points from Libor plus 350 basis points, a market source said. Upfront fees on the tranche were increased to 50 basis points from 25 basis points, the source added.

The facility also contains a $100 million five-year revolver with an interest rate of Libor plus 300 basis points.

Merrill Lynch is the lead bank on the Boston technology company's deal that will be used to help redeem convertibles and replace the existing revolver.

Lastly, Veritas DGC Inc.'s credit facility was restructured and repriced, according to a syndicate source. The loan now consists of a $60 million three-year revolver, a $40 million three-year term loan A, a $125 million four-year term loan B with an interest rate of Libor plus 500 basis points and a $40 million five-year term loan C, that will not be syndicated, with an interest rate of Libor plus 750 basis points, the syndicate source said. Pricing on the revolver and the term loan A is gird-based and can range from Libor plus 350 basis points to Libor plus 400 basis points.

The facility originally entered the primary with a $200 million term loan at Libor plus 350 basis points and a $75 million revolver with pricing ranging from Libor plus 225 basis points to Libor plus 300 basis points.

Deutsche Bank is the lead bank on this refinancing deal.

Veritas is a Houston provider of geophysical services to oil and gas industry.

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