Charter collateral appeals; VWR trades still higher

By Paul A. Harris

St. Louis, April 6 - Tuesday in the holiday-abbreviated week of April 5 passed in relative tranquility, market sources advised Prospect News.

"This is Holy Week - it's time for a good 'People' article," a buy-sider offered in way of editorial counsel.

When Prospect News took a pass on this editorial advice, the investor did mention attending the bank meeting for Charter Communications Operating LLC's $6.5 billion credit facility (B2/B).

The St. Louis-based cable and high speed internet company's credit facility is comprised of a $1.5 billion revolver talked at Libor plus 300 basis points, a $2 billion term loan A talked at Libor plus 300 basis points and a $3 billion term loan B talked at Libor plus 325 basis points. JP Morgan and Bank of America are the lead banks.

"From what we're seeing it looks like that deal is going to get done," said the investor.

"When I first saw this deal I tried to be negative," the source continued. "But everybody is looking for assets. Everybody is short of assets.

"If you just took this $3 billion of loans disappear, that's a huge hole in somebody's portfolio.

"People have to redeploy this cash. And these guys have critical mass. They have huge size. It may not be the sexiest business on earth but it's pretty steady state and people understand it."

The investor said that the appeal of the new Charter deal has to do with "better collateral and better coupon.

"From the bank perspective, most of the players are existing lenders. And they seem to be taking the approach that what Charter is offering in this new deal is better than what we have today: the coupon is going up and the collateral is improving. Nobody is worried about this in terms of getting their money back because it's a tremendous collateral package."

The investor went on to say that the concerns expressed at the bank meeting centered on the cable firm's operating performance and its liquidity/leverage picture.

"One of the big issues that was debated is that they have a $600 million convert that comes due in 2005," said the investor. "That's one thing that is on everybody's minds in terms of the next maturity that is looming out there. And the company kind of talked around it.

"But they are reviewing their options as relates to de-levering, which is what everybody want to hear. So they basically said that it is either going to be equity or some equity-like execution, they expect, to de-lever this thing."

Will Charter draw new money?

"The real question about this deal is, how much new money shows up, if any?" the buy-sider commented.

"It looks like a slight oversubscription. But for the most part you're going to get your full allocation, whatever you commit to on the pro rata.

"I think the B loan is going to be no problem. We spent a lot of time looking at it in terms of talking to people. And they just about had that thing fully circled at the bank meeting."

MGM's movies vs. Warner's music

The investor also owned to having made a recent "academic" comparison between loans in the market from Metro-Goldwyn-Mayer Inc. and Warner Music Group.

On Monday MGM was heard to be set for a Wednesday bank meeting for a $2.4 billion credit facility via Bank of America and JPMorgan. The loan is comprised of a $1.6 billion term B talked at Libor plus 250 to 275 basis points, a $400 million revolver talked at Libor plus 225 to 250 basis points and a $400 million term A talked at Libor plus 225 to 250 basis points.

The $1.45 billion Warner Music Group deal (B1/B+), meanwhile, is comprised of a $250 million six-year revolver at Libor plus 275 basis points and a $1.2 billion seven-year term B at Libor plus 275 basis points, with a step-down to 250 basis points tied to leverage.

The comparison left this buy-sider with a song in his heart.

"It's interesting to look at the Warner Music deal, which is effectively a music library, and lay it down next to MGM, which is a film library," the investor said.

"There are a lot of similarities. But at the end of the day I was impressed with Warner's presentation. They convinced me that it was a pretty simple business. There is little or no capex and minor distribution expenses. And there are a lot of opportunities relating to music gravitating into another format."

A seller's market

The investor specified that the dynamics that have been in play in the recent leveraged loan market remain in play at present.

"People are still struggling for assets," the buy-sider said.

A trader who spoke to Prospect News late in the session expressed much the same sentiment.

"It's a seller's market," said the trader. "The new issue guys are doing stuff at more aggressive prices, at more aggressive leverage. And everything is immediately trading up.

"I don't think the supply to date has matched peoples' needs for paper.

"I don't know when that inflection point may occur, but I think that it will."

VWR in action during quiet secondary session

Characterizing Tuesday's session as an extremely - if expectedly - quiet one, the only notable activity the trader saw was in the new paper from VWR International.

The credit facility (B1/BB-) is comprised of a $415 million seven-year term loan priced with an interest rate of Libor plus 250 basis points and containing a stepdown in pricing to Libor plus 225 basis points if leverage falls below five times. The facility also consists of a $150 million five-year multi-currency revolver, with an interest rate of Libor plus 250 basis points and a €175 million seven-year term loan, upsized last week from €150 million, with an interest rate of Libor plus 275 basis points.

"The dollar-denominated B broke yesterday at 101, and has traded up to 101.626 today," the trader said.

"The market is 101.626 bid, 101.875 offered."

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