Walter cuts spreads; Neiman, School Specialty, Renal Advantage tweak sizes, cut pricing; Gables breaks

By Sara Rosenberg

New York, Sept. 26 - Walter Industries Inc., The Neiman Marcus Group Inc., School Specialty Inc. and Renal Advantage Inc. all made changes to their credit facilities, with all four deals reverse flexing pricing on their institutional term loans, Neiman and Renal upsizing their term loans, and School Specialty upsizing its funded term loan while downsizing its delayed-draw term loan.

In the secondary, Lion Gables Realty LP's new credit facility freed up for trading, with the term loan quoted in the upper-par context.

Walter Industries Inc.'s jumbo two-part credit facility has been met with strong enough demand for the syndicate to reduce spreads on both term loan Bs by 25 basis points and add a step down to each tranche as well, according to a market source.

The $1.8 billion credit facilities are being obtained in connection with Walter's proposed acquisition of Mueller Water Products Inc. The company is dividing into two separate entities - one comprised of its water group (Mueller), which will include Mueller and U.S. Pipe, and the other (Walter) comprised of its energy, homebuilding and financing groups.

The Mueller $1.05 billion term loan B was reverse flexed to Libor plus 225 basis points, with a step down to Libor plus 200 basis points under certain conditions, from original price talk of Libor plus 250 basis points, the source said.

The Walter $425 million term loan B was reverse flexed to Libor plus 200 basis points, with a step down to Libor plus 175 basis points under certain conditions, from original price talk of Libor plus 225 basis points, the source added.

Mueller's $1.175 billion credit facility (B2/B+) also contains a $125 million revolver.

Walter's $625 million credit facility (Ba3/B+) contains a $200 million revolver.

Mueller's term loan, revolver borrowings and super holdco notes will be used to fund a dividend to U.S. Pipe, a dividend to Walter and refinance existing debt.

Walter's term loan, revolver borrowings, some U.S. Pipe proceeds and super holdco notes will be used to fund the acquisition of Mueller and refinance existing revolver debt.

Banc of America Securities LLC and Morgan Stanley & Co. are joint lead banks on the deal, with Bank of America the left lead.

Under the acquisition agreement, Walter has agreed to purchase Mueller for $1.91 billion, consisting of about $860 million in cash and the assumption of about $1.05 billion in Mueller debt. The transaction is expected to be accretive by $0.20 to $0.24 per fully diluted share in the first full year after closing.

Walter Industries is a Tampa, Fla.-based diversified company that operates in homebuilding, related financing, and water transmission products, and is also a producer of high-quality metallurgical coal. Mueller is a Decatur, Ill.-based supplier of water infrastructure and delivery systems.

Neiman Marcus upsizes, reverse flexes

Neiman Marcus decided to shift some funds out of its bond offering and into its very oversubscribed term loan B, while at the same cutting pricing by 50 basis points on the term loan tranche.

The 71/2-year term loan B is (B1/B+/B) is now sized at $1.975 billion, up from $1 billion, and pricing came down to Libor plus 250 basis points, down from price talk of Libor plus 300 basis points, according to a fund manager. The 101 soft call protection for one year against voluntary repayments remained in place.

In connection with the bank upsizing, the company decided to downsize its bond offering by $975 million by dropping its $850 million senior secured notes offering, reducing its senior notes tranche to $700 million from $750 million and reducing its senior subordinated notes tranche to $500 million from $575 million.

Neiman's now $2.575 billion credit facility, up from $1.6 billion, also contains a $600 million five-year asset-based revolver (NA/NA/BB-) with an interest rate of Libor plus 175 basis points and a 37.5 basis point commitment fee.

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

Proceeds from the credit facility, the bonds and an equity contribution will be used to help fund the approximately $5.1 billion leveraged buyout of Neiman Marcus and for general corporate purposes.

Under the terms of the acquisition agreement, Texas Pacific Group and Warburg Pincus LLC will acquire all of the outstanding class A and class B shares of Neiman Marcus for $100.00 per share in cash. Each of the investors will own equal stakes in the company upon completion of the transaction.

Neiman Marcus is a Dallas-based high-end specialty retailer.

School Specialty tweaks

School Specialty made a number of changes to its credit facility, some of which have been rumored since late last week, including cutting spreads on its term loans, downsizing its delayed-draw term loan and upsizing its term loan B, according to a market source.

The delayed-draw term loan was pared to a size of $150 million from an original size at launch of $250 million, and pricing on the tranche was cut to Libor plus 225 basis points from original price talk at launch of Libor plus 250 basis points, the source said.

Meanwhile, the term loan B was increased to $325 million from an original size at launch of $300 million, and pricing, like the delayed-draw loan, was cut back to Libor plus 225 basis points from original price talk at launch of Libor plus 250 basis points, the source continued.

School Specialty's now $650 million senior secured credit facility (B1/B+), down from a previous size of $725 million, also contains a $175 million six-year revolver with an interest rate of Libor plus 225 basis points.

Proceeds from the credit facility, along with proceeds from a recently priced bond offering and equity contributions, will be used to fund the leveraged buyout of the company by Bain Capital and Thomas H. Lee Partners.

Bain and Thomas H. Lee have agreed to purchase the Greenville, Wis., education company in a transaction valued at $1.5 billion including assumption of non-convertible debt totaling $101 million.

The delayed-draw term loan will be used to fund certain permitted acquisitions and to repurchase any of School Specialty's 3.75% convertible subordinated notes due 2023 tendered and exchanged.

JPMorgan and Bank of America are co-lead arrangers on the credit facility. JPMorgan, Bank of America and Deutsche Bank are joint bookrunners. JPMorgan is also acting as administrative agent, Bank of America as syndication agent and Deutsche as documentation agent.

At the end of last week, School Specialty priced a downsized $350 million issue of eight-year senior notes above price talk levels at par to yield 10%. Price talk had been in the 9¼% to 9½% range.

Initially, the company was planning on issuing $650 million in high-yield bonds, comprised of $350 million in senior notes and $300 million in 10-year senior subordinated notes. However, last week, the bond offering was tweaked, with the senior notes offering being upsized to $425 million and the senior subordinated notes being downsized to $225 million. Then the company decided to pull the senior subordinated notes offering completely and cut the senior notes offering back down to its original size - bringing total bond proceeds down to $350 million.

The company has drawn $275 million under a committed senior subordinated bridge loan to compensate for the lost bond proceeds, the source added.

Renal Advantage upsizes, cuts spread

Renal Advantage decided to shift some funds into its massively oversubscribed term loan B and out of its subordinated notes/mezzanine debt financing, while at the same time reverse flexing pricing on the term loan, according to a market source.

The seven-year term loan B is now sized at $180 million compared to an original size at launch of $150 million, and pricing on the tranche came down to Libor plus 250 basis points from original price talk at launch of Libor plus 325 basis points, the source said.

On the flip side, the company's private issue subordinated notes offering, which is essentially like mezzanine debt, was downsized by about $30 million to roughly $67 million, the source continued.

The company's $50 million five-year revolver was left unchanged in terms of size and pricing, which is currently set at Libor plus 300 basis points.

Proceeds will be used to fund the acquisition of dialysis centers from DaVita Inc. and Gambro Healthcare.

Originally, 70 dialysis centers were going to be purchased but the acquisition will now include a few more hospitals so there's been a small adjustment to the purchase price, which is why the subordinated notes were downsized by close to $30 million, not by the full amount, and a small adjustment to the equity contribution, the source explained.

Citigroup and Lehman are the lead banks on the now $230 million credit facility, with Citi the left lead.

Nashville, Tenn.-based Renal Advantage, previously RenalAmerica Inc., was founded by its chief executive officer, Michael Klein, who most recently served as a senior executive for Gambro Healthcare U.S. The company teamed with Welsh, Carson, Anderson & Stowe to finance the acquisition of the centers.

Martin Midstream likely next week

Martin Midstream Partners LP will likely start approaching investors late this week about its proposed $225 million credit facility but will probably have the actual bank meeting some time next week, according to a market source.

A definitive decision on when the actual launch will occur is expected to be made by the end of the day Tuesday, the source added.

The company was previously expected to launch the deal in late-September, but as Hurricane Rita loomed and its potential impact on the Houston area was unknown, the syndicate decided to take a wait-and-see approach before trying to firm up a bank meeting schedule.

Martin Midstream's facility consists of a $95 million working capital revolver and an up to $130 million term loan with an optional $100 million accordion feature.

Royal Bank of Canada is the lead bank on the deal.

Proceeds will be used to help fund the approximately $100 million acquisition of Prism Gas Systems I LP and refinance existing bank debt.

Subsequent to closing, the Partnership expects to refinance a portion of the new facility with new equity capital.

Martin Midstream Partners is a Kilgore, Texas-based provider of marine transportation, terminalling, distribution and midstream logistical services for producers and suppliers of hydrocarbon products and by-products, lubricants and other liquids. Prism is a natural gas gathering and processing company.

Gables breaks atop par

Lion Gables Realty's credit facility freed up for trading during market hours Monday, with the enormous term loan quoted at par 5/8 bid, par 7/8 offered steadily from the break until the close, according to a trader.

The $1.9 billion one-year term loan (which contains an extension option) is priced with an interest rate of Libor plus 175 basis points and contains 101 soft call protection. The tranche was recently upsized from $1.825 billion. Initially, the deal was launched with price talk of Libor plus 225 basis points but was reverse flexed about a month ago at which time the soft call protection was added.

Gables' $2.2 billion credit facility (Ba2) also contains a $300 million three-year revolver with an interest rate of Libor plus 225 basis points.

Lehman Brothers is the lead arranger and bookrunner on the deal, with ING Real Estate acting as syndication agent.

Proceeds from the credit facility will be used to fund the leveraged buyout of Gables Residential Trust by ING Clarion Partners for $43.50 per common stock share in cash. The total purchase price is approximately $2.8 billion, which includes the assumption and refinancing of about $1.2 billion of Gables' outstanding debt and outstanding series C-1, series D and series Z preferred shares, which have a liquidation preference of about $120 million.

ING has agreed to contribute $400 million in equity for acquisition financing as well.

Gables is a Boca Raton, Fla.-based real estate investment trust focused on multifamily apartment communities.

Delphi term loan trades up

Delphi Corp.'s term loan was actually stronger by about a quarter of a point on Monday, despite a new attack of bankruptcy fears.

The term loan was quoted at 102 bid, 102¾ offered, according to a trader, who said that there was absolutely no reason for the paper to be up.

As for the revolver, that was quoted at 97¼ bid, 98 offered, essentially unchanged from Friday's levels, the trader added.

Delphi is looking to former corporate parent General Motors Corp. for some sort of financial bailout and has warned that it could be forced into Chapter 11 if it does not get concessions from the United Auto Workers union and help from GM.

The company has also said that a filing would come before Oct. 17 when federal bankruptcy laws will change, becoming less friendly to debtor companies as they will be given less time to come up with a reorganization plan.

Investors have been moving back and forth on the bankruptcy issue for weeks, with one day brining stronger expectations that a Chapter 11 filing would emerge and the next bringing expectations that a deal with GM will be worked out.

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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