Secondary levels tread higher as buyers emerge; Delphi collateral package undergoes investor scrutiny

By Sara Rosenberg

New York, May 18 - The secondary bank loan market ended the day on a positive note with paper in general seen higher across the board as more buyers have entered the market and selling pressure has eased.

Meanwhile, focus continues to remain on Delphi Corp.'s recently launched credit facility, with some investors primarily giving attention to the collateral package - especially given the recent swell of bad news coming out of companies operating in the same sector.

In secondary trading on Wednesday, the tone was much improved as traders not only got a respite from the recent backtracking that has been evident in the market, but even saw a mini rally with paper in general strengthening by a quarter to a half a point - including, for example, that of Charter Communications Inc., UPC Financing Partnership and Masonite International Corp.

Charter, a St. Louis-based cable company, saw both its term loan A and term loan B bank debt move up about half a point on the day, with the term loan A closing out the session at 96 bid, 97 offered and the term loan B closing out the session at 98 bid, 98½ offered, according to a trader.

UPC, a subsidiary of Denver-based broadband network business UnitedGlobalCom Inc., saw its dollar term loan move up to 99 1/8 bid, 99½ offered by close, up a quarter to a half a point from previous levels around 98¾ bid, 99½ offered, the trader said.

Lastly, Masonite, a Mississauga, Ont.-based building products company, saw its term loan levels get stronger by about a quarter of a point on the day, with quotes closing out the session at 99¼ bid, 99¾ offered, compared to previous levels of 99 bid, 99 3/8 offered, the trader added.

"Cash guys are seeing things at relatively cheap levels so they figure they might as well come in and buy some of it up," the trader explained.

"The market in general rallied up about 3/8," another trader added. "Hedge funds stopped selling and now people are back in buying."

Delphi collateral eyed

Delphi's collateral package backing its $2.75 billion credit facility (BB-) is being examined carefully by investors as they want to make sure that they're covered in a worse-case scenario.

The facility, which just launched via a bank meeting on Monday, consists of an amended and upsized $2 billion revolver with grid-based pricing and an initial interest rate talked at Libor plus 450 basis points, and a $750 million term loan talked at Libor plus 550 basis points that is being offered at an original issue discount of 991/2.

The company's existing revolver that is being amended is currently sized at $1.5 billion.

These new facilities, which are expected to close in early June, will refinance the company's existing credit facility that totals $3 billion.

"People are concerned over the quality of the collateral package. They're trying to raise $750 million in term debt because they need liquidity. Have non-GM receivables and GM receivables. It's secured by GM receivables and inventory. It seems OK. [It's] not great. People are worried about the GM stuff because of [recent rating] downgrades and liquidity issues. People are still trying to get their hands around the collateral," a market source told Prospect News on Wednesday.

"Also, [the] coupon could be too light. Pricing feels like it's backing up a little and people are saying that they can't afford to have stuff trading down. That will be an interesting one to watch. I'd keep my eye on it," the source added.

Delphi's deal was said to have a huge audience from day one largely because it is involved in the auto sector - a sector that has been overwhelmed with news like General Motors Corp. and Ford Motor Co. being downgraded to junk status, and Collins & Aikman Corp. filing for Chapter 11 bankruptcy protection because of liquidity problems.

Then, in addition to launching the new deal on Monday, Delphi announced that some lower and middle level executives in its finance staff would be resigning in connection with an almost completed review of certain transactions under investigation and a restatement of financials. The review began in 2004.

Delphi's audit committee initiated an internal investigation in response to an SEC inquiry regarding the accounting for certain transactions with suppliers of information technology services in 2001. The transactions under the internal review included rebates, credits or other lump sum payments received from suppliers or paid to customers. In the course of the investigation, the audit committee also examined the company's accounting for transactions involving the disposition of indirect material and inventory and certain other transactions.

The company also said that it is dealing with class-action lawsuits that were filed after it announced the need to restate previously issued financial statements.

The lawsuits fall into three categories - one group has been brought under the Employee Retirement Income Security Act of 1974 on behalf of participants in certain of the company's and its subsidiaries' defined contribution employee benefit pension plans who invested in the Delphi Corp. Common Stock Fund, the second group alleges that Delphi and certain of its current and former directors and officers made materially false and misleading statements in violation of federal securities laws, and the third group of lawsuits pertains to a shareholder derivative case and a demand.

JPMorgan and Citigroup are joint lead arrangers on the credit facility, with JPMorgan the left lead.

Delphi is a Troy, Mich., supplier of vehicle electronics, transportation components, integrated systems and modules, and other electronic technology to vehicle manufacturers.

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