FTD allocates thinly, term loan B breaks for trading in the low- to mid-101 area

By Sara Rosenberg

New York, Feb. 13 - FTD Inc.'s $135 million (B1/B+) loan allocated and broke for trading on Friday, with the term loan B immediately moving up to 101 plus levels. Allocations on the institutional tranche were said to be really small since such strong demand came in for the paper, leaving new investors with the decision of either being happy with what they got, trying to increase their position or getting rid of the paper altogether.

"Allocations weren't good. Our allocation was cut back by about 88% from our order size. Seems like people on average got 15% to 20% of what they asked for," a market participant said. "Everybody got small allocations so either you decide to get rid of it or you decide to add. Our allocation was so small that I'm leaning toward probably selling it."

The $85 million term loan B was quoted at 101¼ bid, 101½ offered on Friday afternoon. It was originally issued to investors at par.

The credit facility also contains a $50 million five-year revolver with pricing of Libor plus 275 basis points and a 50 basis points commitment fee. Pricing on this tranche was unchanged throughout syndication.

Credit Suisse First Boston and UBS are joint lead arrangers on the deal.

Proceeds will be used to help support the leveraged buyout of FTD by Green Equity Investors IV LP, an affiliate of Leonard Green & Partners LP.

During syndication the seven-year term loan was reduced to $85 million from $100 million, after a decision to increase a bond offering by $25 million to $175 million, and pricing was lowered to Libor plus 275 basis points from Libor plus 300 basis points because of the strong demand.

Furthermore, Green Equity Investors IV LP's equity contribution was reduced by $10 million to $184 million following the bond upsizing.

In reaction to the company's decision to decrease its term loan, decrease the equity contribution and increase the bond offering, Moody's Investors Service downgraded FTD's senior secured bank facility to B1 from Ba3 and senior subordinated notes to B3 from B2.

"The increase in total debt, coupled with the decrease in equity, results in a higher leverage profile than originally anticipated when the prior ratings were assigned, and this more aggressive profile is inappropriate at the former rating category. The reduction in equity results in the equity percentage of the transaction reducing from roughly 43% of the total to roughly 40% of the total, and total leverage increases from roughly 4.9x to roughly 5.1x," Moody's had said.

FTD is a Downers Grove, Ill., floral company.

Arinc reverse flexes

Arinc Inc.'s $125 million term loan B due 2011 was reverse flexed to Libor plus 225 basis points from Libor plus 250 basis points due to strong investor demand, according to a fund manager.

The deal, which launched on Jan. 20, was oversubscribed within a week of hitting the market despite the fact that some people thought that the original spreads were kind of low given the nature of the business and the amount of risk surrounding the business. However, in a market like the current one, even people who were not particularly thrilled with the deal couldn't imagine not committing to it.

The $200 million secured credit facility (Ba3/BB) also contains a $75 million revolver due 2009 priced with an interest rate of Libor plus 200 basis points.

Wachovia is the lead bank on the deal that will be used to help fund a benefit pension plan, refinance existing bank debt and refinance existing bond debt.

Arinc is an Annapolis, Md., provider of transportation communications and systems engineering solutions for aviation, airports, defense, government and transportation.

The Pantry

Details on The Pantry Inc.'s proposed senior credit facility are still relatively fluid, according to market sources, since the company is basing the final size on the outcome of the proposed bond offering.

"I haven't seen any definite details yet," a market source said. "They're waiting to see how big of a bond deal the company gets done. However, the preliminary information is that it's going to be a $440 million deal consisting of a seven-year $370 million term loan B priced at Libor plus 300 basis points and a six-year $70 million revolver."

On Friday, the company priced an upsized $250 million of 10-year senior subordinated notes offering. The deal was originally anticipated to be sized at $225 million with proceeds earmarked to fund the tender for 10¼% senior subordinated notes due 2007.

And, now that the bond deal has priced, structure on the credit facility should firm up, according to the market source.

The $440 million size and structure on the credit facility was announced by the company at the start of this week. However, according to a syndicate document the deal was sized at $385 million with sizes of tranches, pricing and timing still to be determined.

"No word yet [on the bank meeting]," the market source continued. "Probably next week some time."

Wachovia and Credit Suisse First Boston are the joint lead arrangers on the deal.

Proceeds will be used to refinance the company's existing senior credit facility. The refinanced credit facility is expected to provide the company with increased financial flexibility and lower interest rates, according to a company news release.

On Thursday, Standard & Poor's assigned its B+ rating and a recovery rating of 4 to credit facility, with a stable outlook.

S&P said the ratings reflect The Pantry's participation in the competitive and highly fragmented convenience store industry, significant exposure to the volatility of gasoline prices, and market concentrations in resort communities and in the southeastern United States, in which economic slowdowns can impact operations. The company is also highly leveraged, and cash flow available for interest is relatively thin.

The agency noted these risks are somewhat mitigated by the company's leading position in the industry and a less aggressive expansion strategy over the next two years, which should allow the company to reduce debt.

On Wednesday, Moody's rated the proposed bank loans at B1 with a stable outlook.

Moody's said constraining the ratings are the risks inherent in the company's strategy of rolling up small convenience store chains, the variability of gasoline and tobacco sales, and the company's significant fixed charge burden. However, Pantry's status as the third largest chain of non-oil company convenience stores and recent improvements in gasoline and merchandise margins support the ratings.

The Pantry is a Sanford, N.C., convenience store chain.

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