International Coal term loan breaks in high 101s; Duane Reade weaker on downgrade

By Sara Rosenberg

New York, Nov. 9 - International Coal Group's credit facility (B2/B-) broke for trading on Tuesday, with the institutional paper moving into high 101 territory. Meanwhile, in other secondary doings, Duane Reade Inc.'s bank debt fell off by about an eighth to a quarter of a point during Tuesday's session as lenders reacted to a rating downgrade from Moody's Investors Service.

International Coal Group's $175 million six-year term loan was quoted at 101½ bid, 102 offered, according to a trader. The tranche is priced with an interest rate of Libor plus 275 basis points.

Originally, the term loan was sized at $155 million with an interest rate of Libor plus 300 basis points but was upsized and reverse flexed during syndication.

In fact, the company's revolver was also upsized and reverse flexed at the start of this month, increasing to $110 million from $50 million and cutting pricing to Libor plus 250 basis points from Libor plus 275 basis points. Furthermore, the revolver grid was adjusted to remove the potential of a Libor plus 275 basis point spread altogether by making Libor plus 250 basis points the top tier level.

The letters-of-credit sub-facility under the revolver was increased to $60 million from $20 million during syndication as well. And, the company's originally planned $40 million six-year synthetic letter-of-credit facility that was priced with an interest rate of Libor plus 300 basis points was cancelled.

The incremental term loan proceeds will be used to repay the $4 million drawn under the existing revolver and to increase the company's cash balance.

UBS is the lead bank on the deal, with GE Capital Corp. acting as documentation agent.

International Coal Group was formed by an investor group including, WL Ross & Co., Contrarian Capital Management LLC, Greenlight Capital Inc., Stark Event Trading Ltd. and Varde Partners Inc., to acquire the operating assets of Lexington, Ky.-based Horizon Natural Resources Co.

Duane Reade dips on downgrade

Duane Reade's bank debt was quoted at par ¾ bid, 101 offered, according to a trader. The paper had previously been quoted in the 101 bid, 101½ context, the trader added, attributing the slight weakening to Moody's decision to downgrade the company's debt.

On Monday, the rating agency lowered the term loan to B2 from B1 and the senior subordinated notes to Caa1 from B3.

"The downgrade reflects the mediocre operating results over the previous several quarters and Moody's revised expectation that sales, operating profit, and debt protection measures will remain weak over the medium term," Moody's explained.

"The ratings now recognize Moody's opinions that lease adjusted leverage will not soon substantially improve from 71/2; times and fixed charge coverage will stay low at near 1 time, but the company has adequate liquidity," Moody's added.

Moody's isn't the only rating agency to express concern over the company's performance, although it was the only agency to go as far as downgrading the debt. Late Friday, Standard & Poor's revised its outlook on Duane Reade to negative from stable based on concerns over weaker-than-expected sales trends of high-margin non-pharmacy merchandise and concerns that credit protection measures are likely to be weaker than previously anticipated given the company's inability to reverse the negative sales trend.

Duane Reade is a New York-based drugstore chain.

Delta close to done

Delta Air Lines Inc.'s newly launched credit facility is "close to being fully subscribed" as the deal attracted a significant amount of early interest on both the term loan and the revolver, even excluding American Express Travel Related Services Co.'s agreement to provide $100 million of the credit facility financing, according to a market source.

The $500 million three-year senior secured credit facility consists of a $300 million revolver talked at Libor plus 400 basis points and a $200 million term loan talked at Libor plus 600 basis points.

General Electric Capital Corp. is the sole lead arranger on the Atlanta air transportation company's deal that is part of its out-of-court restructuring plan.

The revolver is secured by some accounts receivable and the term loan is secured by the remaining unencumbered assets.

Northwest starting to see orders

Also, in the airline sector, Northwest Airlines Inc.'s $975 million credit facility (B1/B+) started to get some orders in from investors late last week and the beginning of this week, according to a market source, who explained that people were waiting on the collateral valuation lender call before committing.

The collateral call took place on Friday, two days after the actual launch of the facility. The collateral call was planned from the very start and is standard practice in airline deals, a source previously explained.

Although syndication is progressing, it is not expected to be a very quick process, according to a buyside source, as investors will need to look at and study the industry risks before throwing their money into the deal.

Some issues facing the new deal are high fuel prices and an inability to raise rates because of competition from cheaper carriers.

The facility consists of a $675 million five-year term loan A talked at Libor plus 550 basis points and a $300 million six-year term loan B talked at Libor plus 750 basis points.

Both term loans contain call protection of 103 in year one, 102 in year two and 101 in year three.

JPMorgan and Citigroup are the lead banks on the deal, with JPMorgan on the left, and Deutsche Bank is involved as well.

Proceeds will be used by the Eagan, Minn.-based airline company to refinance existing revolver debt. The company currently has a $725 million five-year revolver due October 2005 and a $250 million 364-day revolver due October 2004 and renewable annually at the option of lenders. The revolvers carry an interest rate of Libor plus 325 basis points.

General Growth may break this week

Traders are excitedly awaiting the entrance of General Growth Properties Inc.'s $6.15 billion ($9.75 billion with bridge loan) credit facility (Ba2/BB+) into the secondary market as supply continues to fall short of demand, with some anticipating that the event could occur as early as Wednesday but may not happen until Friday.

The Chicago shopping mall owner's facility consists of a $500 million three-year revolver talked at Libor plus 225 basis points, a $3.65 billion three-year term loan A talked at Libor plus 225 basis points, and a $2 billion four-year term loan B talked at Libor plus 250 basis points.

The revolver was recently upsized from $250 million as the term loan A was downsized from $3.9 billion.

Lehman Brothers and Credit Suisse First Boston are joint lead arrangers on the deal, with Lehman left lead. Lehman, CSFB, Wachovia and Bank of America are joint bookrunners.

Proceeds will be used to help fund the acquisition of The Rouse Co. and to refinance $2 billion of General Growth's unsecured credit.

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