Crown Cork & Seal's sudden launch results in a handful of commitments by day's end

By Sara Rosenberg

New York, Jan. 29 - The relatively unexpected launch of Crown Cork & Seal Co. Inc.'s proposed $1.05 billion credit facility went "swimmingly" on Wednesday, with more than half a dozen commitments in by the end of the day and the B loan "looking very strong", according to a syndicate source.

"The whole thing came together very quickly," the syndicate source said, regarding the launch of the credit facility. "You can hear the tiredness in my voice."

Deutsche Bank and Salomon Smith Barney are the lead banks on the deal, which is part of the company's substantial refinancing plan which includes $3 billion of new financing.

The loan consists of a $550 million first lien revolver with an interest rate of Libor plus 400 basis points and a $500 million first lien term loan B with an interest rate of Libor plus 425 basis points, a syndicate source told Prospect News.

Other aspects of the comprehensive refinancing plan include $1.75 billion in senior secured second and third lien notes, $200 million of convertibles and $125 million of debt-for-equity exchanges. With the refinancing, which is expected to be completed by the end of the first quarter, substantially all of the company's debt would have maturities in 2006 and beyond.

The new debt is structured in such a way (with first, second and third liens) to give investors added cushion in case of a distressed scenario, a fund manager explained.

"When a company files for Chapter 11 and there are asbestos claims, it's a senior unsecured claim," the fund manager said. "All new issued debt will be senior secured to put [investors] in a better position should the company file."

Basically, the company had to reassure potential investors that if a bankruptcy situation occurs, investors would come ahead of any legal claims such as the asbestos claims that the company is currently dealing with, the fund manager added.

During 2002, the company settled 43,000 cases of asbestos claims for approximately $77 million compared to 31,000 cases settled in 2001 for approximately $66 million. Cases filed against the company were 36,000 in 2002 and 53,000 in 2001. Asbestos-related payments totaled $114 million in 2002, including $75 million under settlement agreements compared to 2001 payments of $118 million, which included $66 million under existing settlement agreements. The company currently expects that 2003 asbestos-related payments will total $70 million, including $41 million from existing settlement agreements.

In the fourth quarter, the company recorded a net charge of $30 million to increase its asbestos reserve. Based upon various factors, the company estimates that its asbestos liability for pending and future asbestos claims will range between $263 million and $502 million. After the charge of $30 million, the company's reserve at Dec. 31, 2002, was $263 million compared to $347 million at Dec. 31, 2001, according to a news release.

With plans to sell $1.75 billion of high yield notes and over $1 billion in bank debt the question of whether the company is being overly ambitious came to mind. One source told Prospect News that the sector has done pretty well this year, which is a plus for investors. Furthermore, both the high yield and bank loan primary markets are doing extremely well right now so that probably influenced the company's decision to bring these offerings to the marketplace at the present time. The source added that it is not very unusual for a company to do a refinancing a couple of months in advance, especially if the market is a good one.

Proceeds from the new debt will be used to refinance the company's existing revolver that was scheduled to mature on Dec. 8, and approximately $900 million of senior notes, including all of the notes scheduled to mature in 2003 and approximately $300 million of the notes due in 2004 and 2005.

The company's bank debt experienced a lot of trading activity on Tuesday as speculation about the company's refinancing plans was heard in the marketplace. Towards the end of the day the bank debt was reported with a bid around 973/4.

On Wednesday, the bank debt was said to be trading around 98, up slightly from the previous day's levels, according to a trader. When asked whether the paper would trade up to par in expectation of being taken out, the trader responded that he wasn't sure since there are various factors involved.

Crown Cork & Seal is a Philadelphia supplier of packaging products to consumer marketing companies.

In follow-up news, Tuesday was the last day for early commitments on Penn National Gaming Inc.'s proposed $800 million credit facility, according to a fund manager, who already committed to the deal so as to be given preferential treatment for allocations.

When asked what was attractive about the facility, the fund manager responded: "Diversity of revenue stream, strong management team with a history of successfully integrating acquisitions, M&A potential, a number of exit strategies and the management team has had no problem accessing the capital markets."

However, a market professional noted that the deal "looks like it's going slower-than-expected. I heard that they only got half of it done so far. I don't think it's a bad deal. It's just interesting since so many deals have been blowing out immediately following launch."

As for the recently noted strong primary market, the trader said there "are 17 funds ramping up now, or something like that."

Penn National's loan consists of a $600 million term loan B with an interest rate of Libor plus 350 basis points, a $100 million revolver with an interest rate of Libor plus 300 basis points and a $100 million term loan A with an interest rate of Libor plus 300 basis points.

Bear Stearns and Merrill Lynch are joint lead arrangers, joint bookrunners and syndication agents on the facility that will be used to help fund the acquisition of Hollywood Casino Corp. and refinance debt.

The Wyomissing, Pa. gaming company launched the credit facility late last week. The week prior to Penn National's launch, there was a surge of new deals hitting the market, with the number of bank meetings held entering into the double digits. Because of this, the market professional did remark that the facility's slow progress could have something to do with the fact that people had so many new issues to digest that they simply moved slower on this deal.

Alpha Natural Resources $110 million senior secured revolver with an interest rate of Libor plus 350 basis points is expected to close within the next day or so, according to a syndicate source. The deal was reported to have been a huge success with the syndicate noting that the revolver was "completely oversubscribed".

PNC is the lead bank on the revolver that will be used by the Appalachian coal miner to help fund the acquisition of coal assets of Pittston, coal assets of Coastal and domestic operations of AMCI.

Meanwhile, in the secondary, General Cable Corp. caught the eye of some traders as the company's pro rata bank debt traded for the first time in a while, a trader said. Furthermore, the bank debt traded higher, with quotes in the mid-80's, up from the high-70's to the low 80's, the trader added.

There was no immediate concrete explanation for the bank paper's improved performance, however, the trader remarked that his "inclination is that the credit is improving."

General Cable, a Highland Heights, Ky. developer, designer, manufacturer, marketer and distributor of copper, aluminum and fiber optic wire and cable products, is scheduled to release its fourth quarter earnings results after market hours on Wednesday.

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