Ford, GM rev higher as plans submitted to Congress; Banks could be the ticket for King Pharmaceuticals

By Sara Rosenberg

New York, Dec. 2 - Ford Motor Co. and General Motors Corp. both posted noticeable gains during Tuesday's trading session, shrugging off disappointing November sales results, and instead focusing on the fact that bailout plans were presented to Congress.

In other news, King Pharmaceuticals Inc. is looking to commercial banks to fill out its term loan at initial pricing guidance, and may just be able to achieve that goal, being that the reception from these lenders so far has been positive.

Ford, GM rise with government proposals

The term loan debt of both Ford and General Motors jumped up by a few points in trading as the companies outlined their bids for help to Congress that would hopefully return them to profitability, according to a trader.

Ford's term loan was quoted at 44½ bid, 45½ offered, up from Monday's levels of 41¾ bid, 42½ offered, the trader said.

And, General Motors' term loan was quoted at 45 bid, 47 offered, up from 43 bid, 44 offered, the trader continued.

"Talks were going to happen today. People thinking they'll hear some sort of news on bailout or restructuring," the trader added in explanation of why the companies' debt was stronger.

Ford seeking $9 billion in aid

On Tuesday morning, Ford submitted to Congress a comprehensive business plan and requested access to an up to $9 billion bridge loan in case the current economic crisis worsens or there is a bankruptcy of a major competitor, according to a company news release.

Ford also said that it hopes to complete its transformation without accessing the loan, being that it does not anticipate a liquidity crisis in 2009.

"For Ford, government loans would serve as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company," said Alan Mulally, president and chief executive officer, in the release.

Based on current business planning assumptions, Ford expects both its overall and its North American automotive business pre-tax results to be breakeven or profitable in 2011, excluding any special items.

Among other initiatives, the company is currently exploring strategic options for Volvo Car Co., including the possible sale of the Sweden-based automaker, and it has decided to sell its five corporate aircraft.

In addition, Mulally said, if the company needs to access the proposed government bridge loan, he would work for a salary of $1 a year as a sign of his confidence in Ford's transformation plan and future.

GM seeking $18 billion from Congress

General Motors also submitted its proposal to Congress on Tuesday, in which it asked for access to $18 billion in funds, with the hope being that repayments of the loans would begin as soon as 2011, according to a news release.

The company is requesting bridge loans of up to $12 billion to provide adequate liquidity levels through Dec. 31, 2009. An initial draw of $4 billion is expected to take place this month.

On top of the bridge loans, the company is requesting a $6 billion revolving line of credit to provide liquidity should a severe market downturn persist.

General Motors also said that it intends to significantly reduce the debt currently carried on its balance sheet, and it hopes to engage current lenders, bondholders and unions to negotiate the needed changes.

In addition, like Ford, General Motors' chairman and chief executive officer offered to reduce his salary to $1 per year.

Ford, GM unfazed by sales numbers

Also on Tuesday, Ford and General Motors put out some pretty negative sales results for the month of November, although investors seemed to shrug off this information and focus on the rescue proposals.

Ford, for the month of November, reported total sales of 123,222, down 30.6% from 177,485 in November 2007. Total truck sales were 81,546, down 29% from 114,819 last year, and total Ford, Lincoln and Mercury car sales were 37,272, down 31.5% from 54,439 last year.

And, General Motors delivered 154,877 vehicles in November, down 41.3% from 263,654 a year ago. The company's car sales were 58,786, down 44.1% from 105,077 last year, and truck sales were 96,091, down 39.4% from 158,577 last year.

General Motors is a Detroit-based automotive manufacturer. Ford is a Dearborn, Mich.-based automaker.

King Pharmaceuticals eyes commercial banks

Moving to primary happenings, King Pharmaceuticals' $300 million four-year term loan has received commitments already from several commercial banks at the original price talk level, and the deal is currently tracking to fill out just from this type of investors, according to an informed source.

"Interest level from institutions is at lower price levels, as you would expect," the source remarked.

"It's going surprisingly well," the source continued. "It's still early in that commits are due next Thursday, the 11th."

The term loan was launched to lenders on Nov. 20 with price talk of Libor plus 500 basis points and an original issue discount of 96.

As was previously reported, there has been some chatter that the original issue discount on the loan may widen to the 94 to 95 area, although that was based on institutional interest, not on commercial bank interest.

Amortization on the term loan is 15% in year one, 20% in years two and three and 45% in year four.

Credit Suisse and Wachovia are the joint lead arrangers and bookrunners, with Credit Suisse the administrative agent.

King revolver amendment to pass

Meanwhile, King Pharmaceuticals' proposed amendment to its $475 million revolving credit facility, which is being done in conjunction with the new term loan, is currently expected to pass, the source told Prospect News.

The amendment will increase pricing to Libor plus 500 bps from Libor plus 87.5 bps and allow for the new term loan debt.

The amendment will also raise the commitment fee on the revolver to 50 bps from 20 bps, and there will be mandatory quarterly commitment reductions of 15% in year one and 20% in years two and thereafter, with the remainder due at maturity on April 2012.

Lenders will receive a 100 bps amendment fee for their consents.

Originally, the company was going to come to market with a $1 billion senior secured credit facility (Ba2/BBB-), consisting of a $150 million revolver talked at Libor plus 500 bps, a $350 million term loan A talked at Libor plus 500 bps with an original issue discount of 96 and a $500 million term loan B talked at Libor plus 550 bps with an original issue discount of 95.

However, at launch, lenders were presented with the current structure of a new term loan and keeping the existing revolver in place.

King leverage in the ones

With the present structure, King Pharmaceuticals' leverage through the credit facility will be 1.0 times and total leverage will be 1.5 times.

Proceeds from term loan, along with $425 million in revolver borrowings, will be used to help fund the acquisition of Alpharma Inc. for $37 per share in cash for a total equity value of about $1.6 billion.

Initially, Alpharma had rejected the buyout proposal, so King took the offer directly to Alpharma shareholders. Bu then, last week, Alpharma announced that it decided to sign a definitive purchase agreement with King after all.

The tender offer for Alpharma's shares will expire on Dec. 19.

Other financing for the acquisition will come from cash on hand. The amount of company cash being used for the deal will be increased as a result of the reduction in the amount of term loan debt.

King is a Bristol, Tenn.-based integrated branded pharmaceutical company. Alpharma is a Bridgewater, N.J.-based specialty pharmaceutical and animal health company.

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