Opti Canada upsizes; Reynolds launches with revised structure; Movie Gallery up on earnings

By Sara Rosenberg

New York, May 10 - Opti Canada Inc. increased the size of its in-market term loan B as the deal has met with positive market reception. Also in the primary, Reynolds American Inc. launched its credit facility Thursday with a different structure than was originally outlined, with the term loan being slightly smaller than expected and price talk coming out slightly lower than expected.

Meanwhile, in the secondary, Movie Gallery Inc.'s term loan B traded into the high-90s as the company released its highly anticipated, non-disappointing first quarter financials, inspiring a mini-rally in the paper.

Opti Canada upsized its seven-year term loan B (BB+) to $450 million from an original size of $400 million and, with this change, is now hoping to be ready for allocations early next week, according to a market source.

At close, approximately 66% of the term loan B will be funded, with the remaining amount delayed-draw for six months. Originally, the deal was going to be about 50% funded and about 50% delayed-draw but that changed with the increase in the tranche size.

Pricing on the term loan B, which firmed up last week, is set at Libor plus 175 basis points, the low end of original guidance of Libor plus 175 to 200 basis points, the source said.

RBC Capital Markets is the lead bank on the deal, with Toronto-Dominion Bank, Royal Bank of Scotland plc, Bank of Nova Scotia and BNP Paribas (Canada) involved as well.

Proceeds from the term loan B will be used to repay a C$300 million six-month bridge loan that was used to repay a C$100 million facility bridge loan and to fund previously announced oil sands expenditures for the Long Lake Project and expansion phases.

Closing on the deal is expected to take place next week.

Opti is a Calgary, Alta.-based company focused on developing the fourth integrated oil sands project in Canada, the Long Lake Project, in a 50/50 joint venture with Nexen Inc.

Reynolds launches downsized deal

Reynolds American presented lenders with a slightly different credit facility structure than was previously outlined by the company, as the institutional term loan was a touch smaller than anticipated and price talk was a bit tighter, according to an 8-K filed with the Securities and Exchange Commission.

This change in structure did not come as a big surprise since it had previously been said that there could be some tweaks to the deal that would be announced in connection with the Thursday bank meeting.

As launched, the six-year term loan B is sized at $1.55 billion with opening price talk set at Libor plus 200 basis points. Under the originally announced financing plans, the term loan B was going to be sized at $1.7 billion with price talk of Libor plus 225 basis points.

Amortization on the term loan is 1% per annum, with the balance due at maturity.

The company's $500 million five-year revolver (size as expected) was also launched with opening price talk of Libor plus 200 basis points, down from the originally outlined Libor plus 225 basis points that the company had been expecting. There is a $250 million accordion feature under this tranche.

The revolver carries a 100 basis point undrawn fee, and both this fee and pricing are subject to a ratings-based grid.

Financial covenants under the agreement include a maximum debt to EBITDA ratio, a minimum fixed charge coverage ration and a limitation on capital expenditures.

Lehman Brothers and JPMorgan are joint lead arrangers and joint bookrunners on the $2.05 billion senior secured credit facility (BBB-) - that was originally anticipated at $2.2 billion - with Lehman on the left. Citigroup and General Electric Capital Corp. have recently joined on to the deal as joint lead arrangers as well. Lehman and Citi are co-syndication agents, GECC is documentation agent and JPMorgan is administrative agent.

Proceeds from the term loan, along with proceeds from a $1.65 billion senior secured notes offering with seven-, 10-and 12-year maturities, and $375 million of available cash, will be used to fund the acquisition of Conwood.

Changing the credit facility structure was not the only modification that the company made in terms of its acquisition financings. Under the original plan, the bond offering was set to be sized at $1.8 billion and the amount of available cash to be used was sized at $300 million.

The revolver, which is expected to be undrawn at close, will be available for working capital needs.

Under the acquisition agreement, Reynolds has agreed to pay $3.5 billion for the holding company that owns Memphis, Tenn.-based Conwood, the nation's second largest manufacturer of smokeless tobacco products.

Pro forma for the acquisition, total debt to adjusted EBITDA will be 2.1x, adjusted EBITDA to cash interest expense will be 6.5x and total debt to total capitalization will be 41.4%.

On a stand-alone basis, for the last 12 months ending March 31, Reynold's total debt to adjusted EBITDA was 0.8x, adjusted EBITDA to cash interest expense was 16.4x and total debt to total capitalization was 18.7%.

The transaction, which is expected to close by the end of the second quarter, will require regulatory approval by the Federal Trade Commission.

Reynolds American is a Winston-Salem, N.C.-based manufacturer and marketer of cigarettes and other tobacco products.

The headquarters of the newly combined companies will be located in Memphis, and full integration is expected to be completed by the end of 2007.

Kraton upsizes, firms pricing

Kraton Polymers LLC increased the size of its in-market term loan and firmed pricing at the low-end of original guidance, according to a market source.

The senior secured term loan due 2013 (B1/B+) is now sized at $385 million, up from $365 million, and pricing is set at Libor plus 200 basis points, the tight end of original talk of Libor plus 200 to 225 basis points, the source said.

Goldman Sachs is the sole lead arranger on the deal.

Security for the term loan is substantially all assets of the company and its subsidiaries, all stock of the company and its domestic subsidiaries and 65% of the capital stock of first-tier foreign subsidiaries.

Proceeds from the term loan will be used to refinance the company's existing $263 million term loan and help fund a cash tender offer for any and all of its parent company's, Polymer Holdings LLC, outstanding $150 million 12% senior discount notes.

Consummation of the tender offer is subject to a number of conditions, including receipt of consents from noteholders and the successful completion of the credit facility refinancing.

The tender offer will expire at 9 a.m. ET on May 22.

Closing and funding of the new term loan is targeted for May 15.

Kraton Polymers is a Houston-based specialty chemicals company.

Movie Gallery jumps on numbers

Movie Gallery's term loan B rallied into the high-90 context as the company announced first quarter numbers that proved investors were right to be optimistic these past couple of days about what the latest financials would show, according to a trader.

The term loan B closed out the session quoted at 96½ bid, 97½ offered, up from previous levels of 94¼ bid, 95¼ offered, the trader said. Early on in the day, the bid had gotten as high as 971/2, bounced back to 96¼ and then settled at 961/2.

For the quarter, Movie Gallery reported total revenues of $694.4 million compared to total revenues of $233.8 million in the same period last year.

Net income for the quarter totaled $40.3 million, or $1.27 per diluted share, compared to net income of $18.4 million, or $0.58 per diluted share, in the first quarter of 2005.

And, adjusted EBITDA was $116.8 million for the first quarter, compared to adjusted EBITDA of $39.5 million last year.

Movie Gallery is a Dothan, Ala.-based movie rental company.

Secondary sluggish

As has been the trend for most of this week, the secondary was once again somewhat lethargic and weaker during Thursday's session, with the overall market off by about an eighth to a quarter of a point, according to a trader.

"We've been generically weaker the last couple of sessions. Being that volume was down it made it more apparent to people that the market was off. It's not credit specific. I guess we'll see what happens," the trader said.

MTN closes

SeaMobile Inc., sponsored by Ignition Partners, completed its acquisition of Maritime Telecommunications Network Inc. (MTN) from Perseus Capital, according to a news release.

To help fund the transaction, MTN got a new $115 million credit facility consisting of a $75 million six-year first-lien term B with an interest rate of Libor plus 275 basis points, a $30 million 61/2-year second-lien term loan with an interest rate of Libor plus 625 basis points and a $10 million five-year revolver with an interest rate of Libor plus 300 basis points and a 50 basis point commitment fee.

The second-lien contains call protection of 102 in year one and 101 in year two.

During syndication, the term loan B was upsized from $70 million and pricing was reverse flexed from original talk at launch of Libor plus 300 basis points, and pricing on the second-lien term loan was lowered as well, dropping from original talk at launch of Libor plus 650 basis points.

In connection with the first-lien term loan B upsizing, the equity contribution for the acquisition was reduced by $5 million.

Credit Suisse acted as the sole lead arranger on the deal.

MTN is a Miramar, Fla., provider of broadband solutions for voice, data, internet and compressed video services to cruise ship lines and other offshore industries, and to the U.S. Government.

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