Directories deals move ahead; AT&T drops, recovers

By Paul A. Harris

St. Louis, Mo., Oct. 16--During Thursday's quiet session in the leveraged loan market the directories deals began emerging from behind the bushes.

In the aftermarket, meanwhile, sources reported a quiet session, with AT&T's paper tumbling early and later trading up.

News circulated the market early Wednesday that junk bond investors would soon have a chance to start looking up the numbers of the Qwest directories deal - a two-tranche $1.05 billion Rule 144A offering to be issued jointly by Dex Media East LLC and Dex Media East Finance Co. via JP Morgan, Banc of America Securities, Deutsche Bank Securities Inc., Lehman Brothers and Wachovia Securities, Inc. which will hit the road Thursday according to a syndicate source.

The financing to fund the LBO by the Carlyle Group and Welsh, Carson, Anderson & Stowe contains a $1.49 billion credit facility led by the same syndicate as the junk bonds. The facility contains a $100 million revolver, a $690 million term loan A and a $700 million term loan B.

Off a little further, according to another market source, is the BCE directories deal via CIBC World Markets, Scotia Capital and Credit Suisse First Boston - a deal that could surface in late October according to the source.

The acquisition financing for the BCE directories business by Kohlberg Kravis Roberts and the Ontario Teachers' Pension Plan will include a C$1.54 billion credit facility (B1 expected) comprised of a C$100 million revolver, a C$400 million term loan A and a C$1.14 billion term loan B.

The deal is also expected to include approximately C$600 million of senior subordinated notes.

Further off on the horizon, capital markets sources tell Prospect News, is the deal to fund R.H. Donnelley Corp.'s acquisition of Sprint Corp.'s phone book business for $2.23 billion.

One official from the leveraged loan market told Prospect News on Wednesday that the success of the directories deals comes down to a question of capacity.

"Qwest is a market phenomenon," the official said. "You're going to have to watch it.

"It's huge," the source continued. "If I remember correctly there is a large component that is pro rata. Everybody's been structuring things with the smallest possible revolver and the largest possible B. And this deal for whatever reason is kind of the opposite.

"So I think the questions are A, does the junk get done? and B, is this market large enough to absorb this deal?"

The source said that roughly $800 million of the credit facility is for the banks, with the balance going into the non-bank market.

"That struck me as a huge challenge," the source said.

Speaking with Prospect News early in Wednesday's session, the source said that AT&T Corp.'s loan had broken into the secondary market "down huge, which is kind of classic.

"I think it's kind of a 96.5-ish bid.

"This is one of these big visible names where people throw in their sword and do business with the client. But now they're dumping it in the secondary market and taking a bath."

However several hours later another source had AT&T "coming up a little bit, and getting stronger." He quoted it at 96.25 bid, 97 offer.

Another official reported seeing nothing of note at play in the aftermarket. The big news, the source added, was that Standard & Poor's had downgraded the credit rating of automaker General Motors Corp. and had placed Ford Motor Co. on credit watch negative. Ford could conceivably drop from BBB+ to BBB.

Another leveraged loan market source told Prospect News that perhaps the most notable headline was Standard & Poor's downgrade of Cummins Inc. to junk, an action taken late Tuesday which makes the Columbus, Ind. engine maker a full speculative-grade credit. Moody's Investors Service lowered Cummins to junk in April

"That has been kind of a classic Midwestern blue chip," the source said, "a capital intensive industry in a cyclical business.

"It's just amazing to me that a name like Cummins is below investment grade. I'm not sure what the implications are for the bank debt versus the bonds but I know the derivatives got very wide.

"One little tidbit of information I was told by a Cummins lender was that apparently Cummins' bank debt has a 'springing lien' that I think gets triggered if they go non-investment grade."

Looking ahead, Scientific Games Corp.'s bank meeting is set for Thursday. Its $360 million credit facility consists of an $85 million revolver and a $275 million term loan. Libor plus 300 basis points is the indicative pricing for the term loan, a source previously told Prospect News although a source added on Wednesday that pricing is open. The deal is being done on a best-efforts basis via lead bank Bear Stearns.

The New York, N.Y. provider of lottery and wagering services and systems, formerly known as Autotote, will use proceeds will be used to refinance existing debt.

Finally, although Scientific Games was the only imminent bank meeting that sources reported on Wednesday, one official told Prospect News to watch for the Ball Corp. financing to emerge "next week or the week after."

The source said that the $1.55 billion credit facility to fund the acquisition of German container company Schmalbach-Lubeca AG, would be led by Bank of America and Deutsche Bank, and would include a $600 million term loan B, an $800 million pro rata, and a $200 million bridge loan C to a high yield transaction; the bridge, added the source, is co-underwritten by Lehman Brothers and Banc One Capital Markets, with Lehman Brothers the likely lead on the bond deal.

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