Emdeon breaks, gains 3 points; Loans, synthetics better; Demand driven by low inventories

By Paul A. Harris

Portland, Ore., Oct. 14 - Emdeon Inc.'s $1.224 billion term loan allocated on Friday and came roaring out of the chute, finishing the session 3 points above issue price.

The LCDX 17 loan index finished 91¼ bid, 91½ offered, up 7/8 of a point on the session, according to a hedge fund manager.

Cash loans were ½ point to ¾ of a point better on the day, although there were no big movers, according to a debt capital markets banker who works both loans and bonds.

However week over week, bank loan paper has posted some dramatic moves, according to a trader from a mutual fund.

Lawson Software Inc.'s Libor plus 525 basis points term loan went out Friday at 97 bid, 98 offered, the trader said, up from 92½ bid, 93 offered a week ago. The $1.04 billion five-year deal priced at 96 in early July.

Ashland Inc.'s Libor plus 275 bps term loan B is creeping back up toward par, the trader said, spotting the loan at 99 7/8 bid, par 3/8 offered at the Friday close. That $1.4 billion deal priced at 99.75 in mid-June.

The AES Corp. term loan B went out at 99 bid on Friday, up 2 points on the week, the trader said. The $1.05 billion Libor plus 325 bps loan priced at 99.5 in May.

NRG Energy Inc.'s Libor plus 275 bps term loan B due July 2016 gained 2½ points on the week, finishing Friday at 99¼ bid, 99½ offered.

Asked if loans were grinding back toward a par market, the trader expressed doubts.

"The big theme is that the dealers don't have a lot of inventory, and there have been big repayments, still a strong demand for paper," the trader said.

"Some banks are trying to buy. So high-quality paper, with less than 1.5-times leverage is probably headed back to par."

Emdeon breaks, streaks higher

The upsized Emdeon $1.224 billion seven-year term loan priced and allocated, market sources said on Friday.

The deal, which came with a 550 bps spread to Libor and a 1.25% Libor floor, priced at 97 and traded to 99¾ bid, par ¾ offered, according to a mutual fund manager.

By the close the new Emdeon term loan was par bid, par ½ offered, up 3 points, according to a bank loan trader.

The loan, which was upsized from $1.2 billion, priced at the rich end of the 96 to 97 discount talk and at the tight end of the Libor plus 550 bps to 575 bps spread talk.

The loan comes with 101 soft call protection for one year.

The credit facility (Ba3), which was upsized to $1.349 billion from $1.325 billion, also features a $125 million revolver.

Covenants include a maximum first-lien net leverage ratio and a minimum consolidated cash interest coverage ratio.

Bank of America, Citigroup and Barclays are the joint lead arrangers and bookrunners on the deal, with Bank of America the left lead. Goldman Sachs & Co. is also a bookrunner.

Proceeds will be used to help fund the buyout of the company by Blackstone Capital Partners VI LP for $19.00 per share in cash. The transaction is valued at about $3 billion.

Watch out for the squeeze

A mutual fund manager, who plays both bank loans and junk bonds, was watching the loan streak higher and carping about a crummy allocation, during a Friday morning call.

The investor had also put in for the Emdeon bonds and expressed apprehensions that the strong secondary market performance of the loan, which "was priced to move," would prompt Emdeon and its dealers to squeeze some yield out of the $375 million of junk - talked 11% to 11¼% - which was set to price later Friday.

That squeeze failed to materialize, however. The Emdeon junk priced at par to yield 11%, with Barclays at the wheel.

SkillSoft sets meeting

In other primary market news on Friday, SkillSoft Ltd. set a Tuesday lender call for its $90 million incremental senior secured term loan.

Morgan Stanley Senior Funding, Inc. and Barclays Capital Inc. are the leads.

The Nashua, N.H.-based learning and performance technology company plans to use the proceeds to help fund its acquisition of the Element K business from NIIT Ltd. for $110 million in cash.

The week ahead

Looking to the week ahead, the market is focused on Kinetic Concepts Inc.'s downsized $2.2 billion LBO financing seven-year term loan (Ba3/BB-).

Bank of America Merrill Lynch, Morgan Stanley, Credit Suisse and RBC are leading the deal, which was downsized from $2.6 billion.

"It appears to be going fine, but it's a big number," a trader remarked.

Elsewhere, Triple Point Technology Inc.'s $165 million six-year term loan and Open Link Financial Inc.'s $375 million credit facility (B+) are firming up, the trader said.

Open Link's deal comes with price talk of Libor plus 650 bps with a 1.5% Libor floor and an original issue discount of 96 to 97.

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