Graham Packaging term B close to subscription immediately following launch

By Sara Rosenberg

New York, Jan. 16 - Despite the influx of new deals this week, the market managed to digest the facilities rather well as most of them were reported to do quite nicely at launch.

The newest name added to the list of successes was Graham Packaging Co.'s $810 million credit facility, for which a bank meeting was held on Thursday.

By late Thursday afternoon, Graham Packaging's $660 million term loan B was already "inching towards subscription", a syndicate source told Prospect News.

"It went extremely strong. It's off to a great start," he added.

Pricing on the term loan B, which was previously talked at Libor plus 325 basis points to Libor plus 350 basis points, was officially designated at the lower end of the spectrum at Libor plus 325 basis points, according to the syndicate.

The term loan B matures in seven-years, however, if the $225 million senior subordinated notes due 2008 have not been refinanced with longer maturity dates prior to Jan. 15, 2007 than the B loan is due July 15, 2007.

The term loan will be payable in quarterly installments through 2010, and will require payments of $2.5 million in 2003, $5 million in 2004, $25 million in 2005, $50 million in 2006, $50 million in 2007, $234.4 million in 2008, $234.4 million in 2009 and $58.7 million in 2010, according to a filing with the Securities and Exchange Commission.

Besides the institutional tranche, the credit facility also contains a $150 million five-year revolver with an interest rate of Libor plus 325 basis points.

Deutsche Bank is the lead arranger and bookrunner on the deal. Salomon Smith Barney is the syndication agent.

All assets will be used to secure the credit facility.

Covenants in the agreement include keeping a minimum cash interest coverage ratio starting at 2.10 times, with step-ups over time, keeping a maximum net leverage ratio starting at 5.95 times, with step-downs over time and limiting consolidated capital expenditures to $175 million per fiscal year.

Proceeds will be used to help repay all indebtedness and accrued interest under the existing senior credit agreement, redeem $169 million senior discount notes due 2009 and to fund ongoing capital requirements and general corporate purposes.

As of Sept. 29, 2002 there were $664.5 million of term and revolving loans outstanding and $2.0 million of accrued interest under the existing senior credit agreement, according to the filing.

This is the company's second attempt at an initial public offering and a new credit facility. At the end of July 2002, the company pulled a $700 million senior secured credit facility, which was contingent on the IPO, after the postponement of the IPO due to unfavorable market conditions. The company had financing in place, making it possible for management to choose to wait for better market conditions.

There are some changes in the new offering compared to the original transaction that was attempted this summer. One in specific is the lack of a high-yield bond offering in the new structure. Previously, the company proposed a $100 million add-on to its 8¾% subordinated notes due Jan. 15, 2008.

Graham Packaging is a York, Pa. designer, manufacturer and seller of customized blow molded plastic containers for the branded food and beverage, household and personal care and automotive lubricants markets.

Overall, the primary market is "looking good" as the multiple new deals launched this week received a good reception.

But what makes this market seem to be even stronger is that a lot of the new credit facilities went out a par whereas before the New Year many deals were priced at a discount, a market professional said.

One such example is Fisher Scientific International Inc.'s $550 million credit facility that was launched earlier this week by JPMorgan, Deutsche Bank and Credit Suisse First Boston.

Fisher Scientific's loan consists of a $150 million five-year revolver with an interest rate of Libor plus 300 basis points and a $400 million term loan B with an interest of Libor plus 300 basis points.

The Hampton, N.H. manufacturer of scientific instruments, equipment and supplies will use proceeds from the facility to help fund the refinancing of $600 million 9% senior subordinated notes due 2008.

Another deal that hit the market on Thursday was Sun Media Corp.'s credit facility that consists of a C$75 million five-year revolver and a $200 million six-year term loan B with an interest rate of Libor plus 300 basis points. Bank of America is the lead bank on the deal.

This loan was also anticipated to go smoothly mainly because of the company's appealing capital structure

"It has a nice capital structure. U.S. term loan. Canadian revolver. The book equity is suggestive of the fact that they're not putting much leverage on this thing. I think it's under two times leverage at the bank level," a source previously explained to Prospect News.

"[The company] is nothing particularly sexy but it looks well under-levered. People will look at this and say 'great capital structure. I'll take it'," the source continued.

Besides going towards dividend payments, the Toronto newspaper publishing company will use proceeds to refinance existing debt.

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