Brocade sets OID; 1-800 Contacts unofficial OID floats around; Fresenius timing emerges; LCDX dips

By Sara Rosenberg

New York, Sept. 4 - Brocade Communications Systems Inc.'s revealed the original issue discount on its term loan and, even though the credit facility just launched to retail investors on Thursday, the deal is already more than half done because of orders placed during the senior managing agents round.

Also launching during the session was 1-800 Contacts Inc.'s credit facility and while an official original issue discount price was not announced, some unofficial speculation started circulating around the market.

In other news, Fresenius Kabi came out with timing on the retail launch of its proposed credit facility and modified the structure of the deal to increase the term loan tranche sizes and decrease the bridge loan commitment.

Moving to the secondary market, LCDX 10 was a touch softer on the day, but given the fall in equities, the index's performance was viewed quite favorably.

Brocade Communications held a bank meeting on Thursday to kick off syndication on its proposed $1.125 billion senior secured credit facility, and following the launch, original issue discount guidance on the term loan surfaced, according to buyside sources.

In addition, at the launch, news emerged that the company has already received orders for over 50% of the revolver and term loan just from the senior managing agents syndication, sources said.

The $1 billion five-year term loan is being offered to investors at an original issue discount of 98, sources remarked.

Price talk on the term loan, as well as on the $125 million five-year revolver, is Libor plus 350 basis points if the corporate family rating is Ba2/BB and Libor plus 400 bps if the corporate rating is lower than Ba2/BB.

On Thursday, Moody's Investors Service announced that it assigned a Ba3 corporate family to Brocade and a Ba2 rating to the credit facility, and Standard & Poor's said it assigned a BB- corporate credit rating and BB+ credit facility rating to Brocade.

Both the revolver and the term loan have a 3% Libor floor for 30 months.

The revolver has an initial commitment fee of 50 bps.

Financial covenants include a maximum consolidated leverage ratio with an initial level of 4.25 times, stepping down to 2.5 times, a maximum consolidated senior secured leverage ratio with an initial level of 2.3 times, stepping down to 1.5 times, and a minimum consolidated fixed-charge coverage ratio with an initial level of 1.25 times, stepping up to 2.0 times.

Pro forma debt to EBITDA is 3.13 times and the company is targeting to have over $400 million of cash on the balance sheet post closing.

Bank of America and Morgan Stanley are the joint lead arrangers and joint bookrunners on the credit facility, with Bank of America the administrative agent and Morgan Stanley the syndication agent.

Proceeds from the credit facility will be used to help fund the acquisition of Foundry Networks Inc.

Brocade is purchasing the company for a combination of $18.50 of cash plus 0.0907 shares of common stock in exchange for each share of Foundry common stock. The transaction has an aggregate purchase price of about $3 billion on a fully diluted basis.

Other financing for the transaction will come from $500 million senior unsecured notes and $1.4 billion in cash from the combined company.

The notes are backed by a commitment for a $500 million 12-month senior unsecured bridge loan for which Bank of America and Morgan Stanley are the joint lead arrangers and bookrunners.

Pricing on the bridge loan will be Libor plus 700 bps with a 3% Libor floor for 30 months, and will increase by an additional 50 bps at the end of each subsequent three-month period up until a pricing cap of 12.75%.

The acquisition is expected to close in the fourth quarter, subject to approval by Foundry's stockholders, regulatory approval and certain other conditions.

Brocade is a San Jose, Calif., provider of data center networking services that help organizations connect, share and manage their information in the most efficient manner. Foundry is a Santa Clara, Calif., provider of high-performance enterprise and service provider switching, routing, security and web traffic management services.

1-800 Contacts sees unofficial OID talk

1-800 Contacts saw the emergence of unofficial original issue discount talk on Thursday after the deal was launched to investors with a bank meeting during market hours, according to an informed source.

The $179 million first-lien term loan is rumored to be guided around the 96 area, but the source stressed that the discount talk is by no means formal guidance.

The source went on to explain that the banks are waiting for some feedback from lenders before coming out with an official original issue discount price.

Price talk on the term loan, as well as on the company's $15 million revolver, is Libor plus 395 bps with a 3.75% Libor floor.

The term loan has 101 soft call protection for one year.

Currently, investors are expecting three-B corporate ratings.

JPMorgan is the lead bank on the $194 million deal that will be used to back the buyout of the company by Fenway Partners LLC, which was already completed about a year ago.

When that buyout was announced, it was said that the company was getting a $235 million senior secured credit facility, consisting of a $20 million six-year revolver expected at Libor plus 275 basis points, a $140 million seven-year first-lien term loan expected at Libor plus 275 bps and a $75 million 71/2-year second-lien term loan expected at Libor plus 625 bps.

1-800 Contacts is a Draper, Utah, direct marketer of replacement contact lenses.

Fresenius launch revealed, sizes changed

Fresenius Kabi firmed up timing on the retail launch of its proposed $2.45 billion senior credit facility (Baa2) and came out with some revisions to tranche sizes due to strong demand during the senior managing agents round, according to a market source.

The deal is set to launch with a management presentation and conference call in Frankfurt on Monday and in New York on Wednesday. It was previously known that the launch would be early September business but specific timing had been unavailable.

The facility will be presented to lenders as a $450 million five-year revolver talked at Libor plus 287.5 bps, a $1 billion five-year term loan A talked at Libor plus 287.5 bps and a $1 billion six-year term loan B talked at Libor plus 350 bps, the source said.

By comparison, under the original structure, the term loan A was expected to be sized at $900 million and the term loan B was expected to be sized at $850 million.

The additional term loan funds were taken out of the bridge loan commitment, which is now sized at $1.3 billion as opposed to at $1.65 billion, the source remarked. This bridge financing could be replaced by high-yield financing opportunities.

Fresenius disclosed in August that during the senior managing agents phase of syndication, 20 of its key relationship banks from Europe, North America and Japan, acting as mandated lead arrangers and joint lead arrangers, provided strong commitments towards the deal, oversubscribing the target amount.

Deutsche Bank, Credit Suisse and JPMorgan are the senior mandated lead arrangers on the credit facility, with Deutsche Bank the global coordinator.

The revolver has $200 million of uncommitted availability. Of the revolver amount, $150 million will be made available to APP Pharmaceuticals Inc. and $300 million, along with the $200 million uncommitted, will be made available to a financing subsidiary of Fresenius.

Financial covenants under the facility include a consolidated leverage ratio, a consolidated fixed-charge coverage ratio, an interest expense coverage ratio and limits amounts spent on capital expenditure.

Proceeds from the facility and the bridge loan will be used to help fund the acquisition of APP Pharmaceuticals, refinance APP's existing senior credit facility, and for general corporate and working capital purposes.

Under the agreement, Fresenius Kabi will purchase APP for $23 per share and a registered and tradable contingent value right that could deliver up to $6 per share, payable in 2011, if APP exceeds a cumulative adjusted EBITDA target for 2008 to 2010.

Based on the cash purchase price, the transaction values the fully diluted equity capital of APP at about $3.7 billion, and with the contingent value right, if fully realized, at a value of $4.6 billion.

Fresenius will also assume all of APP's outstanding debt, which totals about $940 million, net of cash; so, in total the consideration for the acquisition could be up to $5.6 billion.

Through the acquisition of APP, Fresenius Kabi will enter the U.S. pharmaceuticals market.

The transaction is expected to close at the end of 2008 or beginning of 2009, subject to certain conditions, including regulatory approvals, and approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Fresenius Kabi is a Bad Homburg, Germany, infusion therapy and clinical nutrition company. APP is a Schaumburg, Ill., hospital-based injectable pharmaceutical company.

Bellisio fills out

In more primary happenings, Bellisio Foods Inc.'s $195 million credit facility has basically wrapped up in terms of syndication and the deal is expected to close in line with initial terms, according to a market source.

The facility consists of a $30 million revolver (B1/B+) priced at Libor plus 425 bps, a $130 million first-lien term loan (B1/B+) priced at Libor plus 450 bps and a $35 million second-lien term loan.

Both the revolver and the first-lien term loan were sold to investors at an original issue discount of 99.

There is no Libor floor on the deal.

GE Capital and NatCity are the lead banks on the facility that will be used to refinance existing debt.

Bellisio Foods is a Minneapolis-based frozen food manufacturer.

HealthPort wraps up

HealthPort Inc.'s $150 million five-year credit facility is also fully syndicated and expected to close at original price talk and structure, according to a market source.

The facility consists of a $20 million revolver and a $130 million term loan, with both tranches priced at Libor plus 500 bps with a 3% Libor floor and an original issue discount of 98.

GE Capital and NewStar are the lead banks on the deal that will be used to fund an acquisition.

Other financing will come from $75 million of mezzanine debt that the company/sponsor - Abry Partners LLC - is arranging.

HealthPort is an Alpharetta, Ga., provider of health care information technology systems for physician practices, hospitals and community health centers.

LCDX heads lower

Switching to trading news, LCDX 10 was a little weaker on Thursday, but investors were pleased that it didn't fall as much as would have been expected given the slide in the stock market, according to a trader.

The index was quoted at 97 bid, 97.10 offered, down from 97.20 bid, 97.30 offered, the trader said.

Nasdaq closed down 74.69 points, or 3.20%, Dow Jones Industrial Average closed down 344.65 points, or 2.99%, S&P 500 closed down 38.15 points, or 2.99%, and NYSE closed down 261 points, or 3.16%.

"Stock market took a dump, but LCDX is barely down on the day," the trader said, adding that based on stocks, he would have thought that the index would have dropped into the upper-96s.

As for the cash market, that held up as well, with levels in general pretty much unchanged on the day, the trader concluded.

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