KGen moves funds to first from second lien; Data Transmission overfills B; Movie Gallery sets launch

By Sara Rosenberg

New York, March 1 - KGen Partners LLC reworked its $475 million credit facility on Tuesday, shifting some funds into its first-lien term loan from its second-lien term loan and increasing pricing on the second-lien tranche in hopes of filling the deal out.

In other primary news, Data Transmission Network Corp.'s newly launched term loan B already had enough commitments to fill the book and then some by the end of the day, and Movie Gallery Inc. is gearing up to launch its proposed $720 million credit facility next week.

KGen upsized its 61/2-year first-lien term loan to $300 million and downsized its 61/2-year second-lien term loan to $175 million being that the first-lien tranche is at least two times oversubscribed while the second-lien tranche is still in the process of attracting enough orders to fill the book, according to a market source.

Furthermore, pricing on the second-lien term loan was increased to Libor plus 700 basis points - split between Libor plus 300 basis points cash payout and Libor plus 400 basis points PIK, the source said. The deal was originally launched with price talk of Libor plus 600 basis points - split between Libor plus 300 basis points cash payout and Libor plus 300 basis points PIK.

Pricing on the first-lien term loan remained at Libor plus 300 basis points.

"[They're] letting the market digest this. [They] got huge oversubscription on the first. [They're] still working on filling out the second," the source said.

Both term loans are still being offered to investors at par with call protection of 101 in year one, 101 in year two and par thereafter.

In reaction to the size modifications, Standard & Poor's lowered its rating on KGen's first-lien term loan to B from B+. The rating agency affirmed its B- rating on the second-lien term loan but lowered the recovery rating on the tranche to 4 from 1.

Moody's Investors Service, on the other hand, opted to affirm its B2 rating on the first-lien term loan and B3 rating on the second-lien term loan, the source said, adding that the rating agency has no plans of putting out a formal release since there will be no change in the ratings.

Credit Suisse First Boston is the lead bank on the credit facility that will be used to refinance existing bank debt, repay seller notes and increase liquidity.

KGen, which is owned by MatlinPatterson Global Opportunities Partners II, purchased Duke Energy's merchant generation assets in the southeast United States last year.

Data Transmission oversubscribed

Data Transmission Network's $155 million term loan B was oversubscribed at price talk levels in the Libor plus 325 basis points area quickly after Tuesday's bank meeting took place, according to a market source.

The $175 million senior secured credit facility (B2/B+) also contains a $20 million revolver.

Goldman Sachs is the lead bank on the deal.

Proceeds will be used to refinance existing bank debt and some junior subordinated debt.

Data Transmission Network is an Omaha, Neb., provider of real-time information to agriculture, refined fuels, commodities trading and weather impacted businesses.

Movie Gallery sets launch

Movie Gallery has scheduled a bank meeting for March 9 to launch its previously announced $720 million senior secured credit facility that will be used to help fund the acquisition of Hollywood Entertainment Corp., according to a market source.

Wachovia Capital Markets LLC is the sole lead arranger, sole bookrunner and administrative agent on the credit facility, and Merrill Lynch will be involved in the loan as well.

Wachovia committed 90% of the debt financing package and Merrill Lynch committed 10%.

The facility consists of a $95 million five-year term loan A with an interest rate of Libor plus 275 basis points, a $550 million six-year term loan B with an interest rate of Libor plus 300 basis points and a $75 million five-year revolver with an interest rate of Libor plus 275 basis points.

The revolver contains an accordion feature allowing for the expansion of the tranche by $25 million under certain circumstances.

Revolver borrowings will be available for working capital and general corporate purposes.

Proceeds from the term loans and a proposed bond offering will be used to pay the approximately $850 million purchase price for Hollywood, plus the assumption of about $350 million of debt. Movie Gallery will be acquiring all of the outstanding shares of Hollywood for $13.25 per share in cash.

The transaction, which is subject to Hollywood shareholder approval, customary regulatory approvals and financing, is expected to be completed during the second quarter of 2005.

Movie Gallery's board of directors has already unanimously approved the transaction.

Hollywood's entry into the merger agreement with Movie Gallery occurred at the conclusion of an auction process led by a special committee of its board of directors during which various bids were solicited.

However, following the Movie Gallery/Hollywood merger announcement, Blockbuster Inc. began a hostile takeover bid, offering to purchase for cash any and all of Hollywood Entertainment's outstanding 9.625% senior subordinated notes due 2011. The tender offer is scheduled to expire on March 11.

"The bottom line is that if the FTC came back and said go ahead (to Blockbuster) then it's an attractive offer. But, Blockbuster [is] in like 80% of the markets, and I think people think there's way too much overlap and that the process will just drag on. We'll see what happens," a sellside source told Prospect News on Tuesday.

Movie Gallery is a Dothan, Ala.-based owner and operator of video specialty stores. Hollywood is a Wilsonville, Ore.-based (and will remain based there following completion of the acquisition) video chain.

Hexcel closes

Hexcel's Corp. closed on its $350 million senior secured credit facility (B2/B+) consisting of a $225 million seven-year term loan B with an interest rate of Libor plus 175 basis points and a $125 million five-year revolver with a pricing grid.

The term loan B was reverse flexed from Libor plus 200 basis points during syndication as the book was somewhere around six to seven times oversubscribed.

Deutsche Bank and Bank of America were the lead banks on the Stamford, Conn., structural materials company's deal.

The new facility replaces the company's existing $115 million senior secured credit facility.

"In entering into our new senior secured credit facility, Hexcel will be able to complete the debt refinancing by the end of the first quarter that we announced in January. The new credit facility together with the senior subordinated notes due 2015 that we issued on February 1, 2005 enable the company to refinance almost all of our existing debt and obtain a significant reduction in our cost of debt while extending debt maturities to 2011 and beyond," said David E. Berges, chairman, chief executive officer and president, in a company news release.

"Further, the new senior credit facility provides Hexcel with pre-payable debt that can be repaid as we generate free cash flow to continue our efforts to de-lever our company. Going forward, these actions will improve earnings, cash flow and interest coverage."

The company also successfully completed its tender offer for the $125 million 9.875% senior secured notes due 2008. The purchase was funded with the new term loan borrowings.

Furthermore, Hexcel has called for redemption $100 million face amount of its 9¾% senior subordinated notes due 2009 and $19.25 million face amount of its 7% convertible subordinated debentures due 2011. The company will use borrowings under the new term loan and revolver to finance these redemptions.

GenTek closes

GenTek Inc. closed on its new $430 million credit facility consisting of a $60 million revolver (B2/B+) due March 2010 with an interest rate of Libor plus 275 basis points, a $235 million first-lien term loan (B2/B+) due March 2011 with an interest rate of Libor plus 275 basis points and a step down to Libor plus 250 basis points on a B1 rating, and a $135 million second-lien term loan (Caa1/B-) due March 2012 with an interest rate of Libor plus 575 basis points and call protection of 102 in year one and 101 in year two.

The first-lien term loan was originally sized at $200 million and talked at Libor plus 300 to 325 basis points, but the tranche was upsized and reverse flexed with the addition of the step down during syndication.

The second-lien term loan was originally launched with price talk of Libor plus 700 basis points but was also reverse flexed during syndication.

Goldman Sachs Credit Partners LP and Banc of America Securities LLC acted as joint lead arrangers on the deal.

About $313 million of term loan proceeds are being used to fund a special dividend to shareholders. Late Monday night, GenTek announced that its board of directors has declared a one-time special dividend of $31.00 per common share payable on March 16.

About $35 million of term loan proceeds are being used to pre-fund certain defined benefit pension obligations.

And, remaining term loan proceeds will be used to pay transaction fees, to refinance existing debt and for general corporate purposes.

Proceeds from the revolver will be used to support seasonal working capital needs and provide additional liquidity.

"We are very pleased to have completed a successful financing and to be able to unlock substantial amounts of value for our shareholders by way of this special dividend," said Richard R. Russell, GenTek's president and chief executive officer, in a company news release.

"Based on the positive reception from the lending community during the financing process, we increased the size of the first-lien term loan by $35 million above our original plan in order to pre-fund $35 million in required minimum payments on our defined benefit pension plans that would have otherwise been due and payable over the next three years.

"By pre-funding near-term pension liabilities with long-term bank debt, we expect to significantly improve our prospects for increased free cash flow over the next few years. With this strong capital structure in place, we can now devote all of our efforts on continuing to improve and grow our core businesses."

GenTek is a Parsippany, N.J., manufacturer of industrial components and performance chemicals.

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