Peabody Energy meeting well attended, loan expected to syndicate successfully

By Sara Rosenberg

New York, March 4 - Peabody Energy's bank meeting on Tuesday for a $1.2 billion credit facility was well attended, according to a syndicate source. The deal was anticipated to go well by market participants for reasons such as the company's market leadership position, proven track record, solid long-term contract and solid collateral package.

"I think the meeting went well," the syndicate source said. "There were some early commitments. It's Ba1/ BB+. You would expect something like this to go well."

Lehman Brothers and Wachovia are the syndication agents, Fleet is the administrative agent and Morgan Stanley is the documentation agent on the St. Louis coal company's deal.

The loan consists of a $600 million five-year revolver with an interest rate of Libor plus 200 basis points and a $600 million seven-year term loan B with an interest rate of Libor plus 250 basis points.

Despite the light pricing, the deal was expected to go very well with the term loan B anticipated to blow out due to the company's strength, good track record of paying down B loans and lack of bank volume in this particular sector, one market participant told Prospect News.

Fees on the term loan B were not discussed at the bank meeting so it currently looks like it will be sold at par, the syndicate source said.

On the revolver, the upfront fee is 50 basis points for a $35 million tier and 37.5 basis points for a $25 million tier.

In the secondary, Nextel Communications Inc. continued to firm up on Tuesday, according to market sources. The term loan B and term loan C was quoted by one trader with a 96¾ bid and a 97¼ offer, while a second trader quoted the loans with a 96¼ bid and a 96 7/8 offer. On Monday, the term loans were trading at 96 5/8.

The term loan A was quoted with a 92¼ bid and a 93¼ offer by one trader, while a second trader quoted the loan with a 91 bid and a 92¼ offer.

Lastly, the revolver was quoted with a 91 bid and a 91½ offer.

The Reston, Va. wireless company has been labeled as a good credit by market participants partly due to the company's favorable history of never disappointing investors with regards to earnings announcements and ability to add customers. Due to this likeable track record, the company's bank debt has been improving almost on a daily basis especially since the most recent earnings results were released in February.

In support of this, a Bank of America research report noted that Nextel's term loan B and C has gained more than 1.5% over the month of February.

Since Nextel is such a strong performing credit and is generating excess cash flow, some market professionals have speculated on what may be the next step for the company. Chitchat floating around includes ideas of calling bonds and refinancing bank debt so as to obtain lower interest rates, although these refinancing ideas are currently just what ifs that some Nextel followers are posing.

One market professional speculated that in order to be able to refinance the bank debt at, say, Libor plus 250 basis points, compared to the over 300 basis points plus that the company is paying on its various tranches, a rating upgrade must be granted by the rating agencies.

"If you have a lot of high coupon debt, and Nextel does, and generating cash flow, there has to be an opportunity to cut cost in capital," the market professional added.

Standard & Poor's acknowledged the improvement Tuesday by changing Nextel's outlook to stable from negative.

Sears Roebuck and Co.'s bank debt, which has received some attention from leveraged loan players due to trades taking place in the mid-90s, was quoted a little stronger on Tuesday. The loan moved into the lower 95 region, up from quotes in the mid-94 area.

The loan first broke a few weeks ago at 99.9, but did not perform very well since the deal was not fully subscribed and not well sold, according to a trader. In addition, pushing the bank debt down was a corporate credit rating downgrade by Standard & Poor's to BBB+ from A-.

Sears is a Hoffman Estates, Ill. North American retailer.

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