Texas Competitive may tighten OID; Level 3 bounces around; Freescale trades up; LCDX stronger

By Sara Rosenberg

New York, Oct. 23 - Texas Competitive Electric Holdings Co. LLC (TXU) is considering reducing the original issue discount on its term loan B-2 due to the strong demand that the tranche has received.

Meanwhile, in trading, Freescale Semiconductor Holdings I, Ltd.'s term loan was better after numbers were announced and Level 3 Communications Inc.'s term loan seesawed on earnings, dropping early on in the session and then rebounding to basically end unchanged.

Also in the secondary, LCDX and cash were both higher on the day in sympathy with the stock market.

Texas Competitive is rumored to be mulling over a reduction in the original issue discount on its term loan B-2 being that the tranche is significantly oversubscribed, according to a market source.

The $7 billion term loan B-2 was being marketed to lenders with a discount in the 99½ area, is priced at Libor plus 350 basis points and carries soft call protection of 103 in year one, 102 in year two and 101 in year three.

Commitments are due from investors on Wednesday after the deadline was moved up from this coming Friday.

There is no word yet on when it might allocate, the source added.

Texas Competitive's $24.5 billion senior secured credit facility (Ba3/B+) also includes a $4.1 billion seven-year final maturity delayed-draw term loan, a $1.25 billion seven-year deposit letter-of-credit facility, a $2.7 billion six-year revolver, a $3.45 billion seven-year term loan B-1 and a $6 billion seven-year term loan B-3, with all of these tranches priced at Libor plus 350 bps as well.

The delayed-draw term loan, revolver, letter-of-credit facility, term loan B-1 and term loan B-3 are not currently being syndicated.

Just recently, Most-Favored-Nation (MFN) language was added to the term loan B-3 so that buyers would be protected from price pressure in the event that the arrangers sell part or all of the loans that have remained on their books in the future at prices below the original issue discount.

This addition sparked some rumors that maybe the term loan B-3 will start being syndicated shortly since the B-2 was so oversubscribed, although nothing official has been announced as of yet.

The term loan B-3 is non-callable for three years, and the term loan B-1 carries no call protection.

The revolver has a commitment fee of 50 bps.

Of the total delayed-draw term loan amount, $2.15 billion was funded at close. The additional $1.95 billion of delayed-draw term loan commitments in place are to ensure available liquidity to fund the construction of new plants.

The delayed-draw term loan has an undrawn fee of 125 bps for the first year and 150 bps after that.

Under the facility, the company must maintain a maximum secured leverage ratio of 7.25 to 1.00 beginning on Sept. 30, 2008.

Citigroup, JPMorgan, Goldman Sachs, Lehman Brothers, Morgan Stanley and Credit Suisse are the joint lead arrangers and bookrunners on the deal, with Citi administrative agent, JPMorgan syndication agent, and Credit Suisse, Goldman, Lehman and Morgan Stanley co-documentation agents.

Proceeds from the credit facility were used to help fund the recently completed leveraged buyout of TXU Corp. by an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group for $69.25 per share. The transaction was valued at $45 billion.

As of June 30, Texas Competitive's total senior secured debt was 4.8 times pro forma adjusted last-12-months EBITDA and total debt was 6.9 times.

In connection with the buyout, TXU, a Dallas-based energy company, changed its name to Energy Future Holdings Corp.

NewPage attracting attention

NewPage Corp. has been receiving some interest on its term loan even though the deal has yet to launch and is not currently being marketed, according to an informed source.

"[They] syndicated the bridge and in that process accounts decided to put in orders. No launch yet. No official talk. Bank meeting [will be] later this year," the source said.

NewPage's $2 billion credit facility consists of a $400 million ABL revolver and a $1.6 billion term loan.

Rumor has it that the pricing area in which investors have shown interest on the term loan is in the Libor plus 375 bps context at a discount of 99.

Goldman Sachs is the lead bank on the deal.

Proceeds from the credit facility, along with a $450 million add-on to the company's second-lien notes, will be used to refinance existing bank debt and to help fund the acquisition of Stora Enso North America (SENA), a paper manufacturing business, from Stora Enso Oyj.

NewPage is buying SENA for $1.5 billion in cash, a $200 million super holdco PIK note that NewPage will issue to Stora Enso and a 19.9% equity interest in the combined company.

For the year 2006, SENA generated $2 billion in revenue and an adjusted EBITDA of $295 million. During that same time, the combined company on a pro forma basis would have generated $4.1 billion in revenue and an adjusted EBITDA of $583 million.

The combination is expected to generate about $265 million in annualized cost savings.

Pro forma for the transaction, total net debt to EBITDA at the opco level will be 4.9 times excluding synergies and 3.4 times including synergies. Total net debt to EBITDA at the holdco level will be 5.5 times excluding synergies and 3.8 times including synergies.

The transaction is expected to close during the first quarter of 2008, subject to customary regulatory approvals.

NewPage is a Miamisburg, Ohio, producer of coated papers.

Freescale stronger on numbers

Moving to the secondary, Freescale's term loan gained some ground on Tuesday as the company announced positive third-quarter results, according to a trader.

The term loan ended that day at 96¼ bid, 96¾ offered, up from Monday's levels of 96 bid, 96½ offered, the trader said.

For the quarter, net sales were $1.45 billion, compared with $1.62 billion in the third quarter of 2006.

Including certain expenses, operating losses for the quarter were $202 million and net losses for the quarter were $261 million.

Excluding those expenses, operating earnings were $195 million and EBITDA was $353 million. This compares with operating earnings of $270 million and EBITDA of $435 million in the third quarter of 2006.

Adjusted EBITDA for the quarter was $396 million. Adjusted EBITDA for the 12 months ended Sept. 28 was $1.57 billion.

Freescale is an Austin, Texas-based designer and manufacturer of embedded semiconductors for the automotive, consumer, industrial, networking and wireless markets.

Level 3 rollercoasters with earnings

Level 3's term loan was all over the place after the company released third-quarter numbers, with the debt quoted lower in the morning and then bouncing back to end the day essentially unchanged, according to traders.

The term loan was quoted by one trader at 97 3/8 bid, 97 7/8 offered at the close. On Monday, this trader saw the loan quoted at 97 bid, 97¾ offered by one guy and at 97¼ bid, 98 offered by another guy.

The trader went on to say that early Tuesday, he saw a quote of 96 5/8 bid, 97 1/8 offered. "To me, that's just noise. Broker quotes are really all over the place many times with either the bid or the offer not very real.

"A lot of people anticipated bad news from Level 3 and I have noticed a pattern of loans being offered just before earnings releases on credits like that. The loan is well covered and well liked, so potential buyers may have been hanging back hoping it would come lower and when there were not many offerings they stepped in to buy what was available. Such are the technicals of the loan market," the trader remarked.

A second trader had the term loan closing out Tuesday at around 97.46 bid, 98.36 offered, compared with Monday's closing levels of around 97.43 bid, 98.36 offered.

For the third quarter, Level 3 reported consolidated revenue of $1.061 billion, compared with consolidated revenue of $1.052 billion in the second quarter.

The net loss for the third quarter was $174 million, or $0.11 per share, compared with a net loss of $202 million, or $0.13 per share, for the second quarter.

Consolidated adjusted EBITDA increased to $215 million in the third quarter from $193 million for the second quarter.

In addition, the company said that it is lowering consolidated adjusted EBITDA guidance for the full year 2007 and the full year 2008 as a result of difficulties with provisioning orders for its services.

Consolidated adjusted EBITDA guidance was changed to a range of $813 million to $833 million from a range of $860 million to $920 million for the full year 2007 and to a range of $950 million to $1.1 billion from a range of $1.15 billion to $1.3 billion for full year 2008.

Level 3 is a Broomfield, Colo.-based communications company.

LCDX, cash higher

LCDX and the cash market in general were better on Tuesday as equities were up, according to traders.

LCDX 9 went out around 99.10 bid, 99.30 offered, up from 98.65 bid, 98.85 offered, traders said.

Cash was up about an eighth to a quarter of a point, traders remarked.

"This morning the whole cash market was better bid. It's been strong throughout the day. Earnings news has been pretty good across the board. People today have been relatively bullish," one trader added.

On Tuesday, Nasdaq ended up 45.33 points, or 1.65%, Dow Jones Industrial Average ended up 109.26 points, or 0.81%, S&P 500 ended up 13.26 points, or 0.88%, and NYSE ended up 110.21 points, or 1.11%.

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