Hanger Orthopedic sees interest from previous B loan lenders and existing bondholders

By Sara Rosenberg

New York, Sept. 5 - Hanger Orthopedic Group Inc.'s proposed $150 million senior secured term loan B (B1/B+), which was launched via a bank meeting on Friday, has already received a number of commitments as many potential lenders were already familiar with the company and its history.

"There were term lenders that were taken out with a bond deal in February 2002 and some bond holders. They have two issues of high yield debt. Even though it's a new issue, it's really not in a lot of ways," a source close to the deal told Prospect News.

Hanger Orthopedic priced $200 million 10 3/8% senior notes due 2009 on Feb. 8 via bookrunners Lehman Brothers Inc., J.P. Morgan Securities Inc. and Salomon Smith Barney Inc. with BNP Paribas Securities Corp. as co-manager.

At that time, the company used the $194 million net proceeds from the sale of the notes, along with $36.9 million it borrowed under a new $75 million revolver, to retire the $228.4 million outstanding under the existing revolver and term loan facilities and to pay related fees and expenses.

Overall, "the meeting was well attended. Lots of questions. Lots of interest," the source continued.

"The company has strong free cash flow generation, approximately $100 million in EBITDA. [And], there's very little in the way of major acquisitions they could do that could get them in a lot of trouble. That's what got them in trouble in the past," the source concluded.

This change in attitude towards acquisitions was favorably noted by Moody's Investors Service as well.

"Hanger had grown rapidly in the past through numerous acquisitions. However, management today is emphasizing operational improvements, improved efficiencies and organic growth," Moody's said. "The company has limited interest and reliance upon acquisitions to support sales and profit growth, or to strengthen its market position. Hanger is already the leading company in the industry, with a roughly 25% market share. Given its scale and national reach, it already has competitive advantages with respect to materials cost, national and regional managed care contracting, and access to the newest technologies given its ability to partner with manufacturers."

The proposed term loan is due in 2009, is priced with an interest rate of Libor plus 325 basis points and is being offered to investors at par.

Commitments are due on Sept. 19 and the goal is to have the deal wrapped up by the end of the month.

Lehman Brothers and GE are the lead banks on the deal.

Proceeds will be used to fund the cash tender offer for $150 million outstanding principal amount of 11.25% senior subordinated notes due 2009.

The tender offer, which is expected to expire on Oct. 1 at 5 pm ET, is conditional on the successful completion of the new bank debt. Lehman Brothers Inc. is the dealer manager for the tender offer and solicitation agent for the consent solicitation.

The company currently has a $100 million revolver in place that expires in 2007. This pro rata tranche will remain as is.

Hanger Orthopedic is a Bethesda, Md. provider of orthotic and prosthetic patient-care services.

Meanwhile, Crown Castle International Corp.'s proposed amendment, which will be discussed at a lender meeting on Tuesday, may also involve a change in the interest rate on the existing term loan B, a source close to the deal said Friday, declining to comment any further.

The company announced earlier this week that it is looking to amend its restricted group operating company's $1.2 billion credit facility, to increase the size of the term loan B by $601 million to $1 billion, to extend the tenor of the term loan B to Sept. 2010 from March 2008 and to reduce the revolver commitment to $350 million from $500 million.

The Opco facility also currently contains a $296 million term loan A, to which no changes are being proposed at this time.

As part of the amendment, Crown Castle intends to designate its U.K. subsidiary a restricted group subsidiary and intends to repay the outstanding balance of its U.K. senior credit facility and redeem its U.K. 9% guaranteed bonds due 2007 with proceeds from the enlarged term loan B.

The approximately $300 million of excess proceeds from the B loan would be used to purchase certain higher coupon senior notes.

The company expects to complete the transaction by Oct. 31.

Crown Castle is a Houston-based company that owns, operates and manages wireless communications sites and broadcast transmission networks, and provides network design, radio frequency engineering, site development and other services.

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