Kinder Morgan skyrockets on paydown news; Tribune rises with numbers; Education Media postponed

By Sara Rosenberg

New York, Dec. 12 - Kinder Morgan Inc.'s bank debt jumped higher on Wednesday as investors are expecting a paydown from a pipeline sale, and Tribune Co.'s term loan B headed up after November financials were released.

Also in trading, LCDX and the cash market in general were stronger as they followed the equity market.

In other news, Education Media & Publishing has pushed off the syndication of its credit facility until 2008 as a result of lackluster investor interest, and Consolidated Communications Holdings Inc. price talk surfaced.

Kinder Morgan's term loan B was considerably better during Wednesday's market hours on the back of news that the company's debt will be paid down from the sale of a pipeline, according to a trader.

The term loan B ended the day at 99 bid, par offered, up from previous levels of 95 bid, 96 offered, the trader said.

Late Tuesday, the company revealed in an 8-K filed with the Securities and Exchange Commission that it is selling 80% of the ownership interests of MidCon to a syndicate of investors led by Babcock & Brown at a price equivalent to a total enterprise value of approximately $6.58 billion, subject to certain adjustments.

MidCon's wholly owned subsidiary, Natural Gas Pipeline Co. of America, owns and operates roughly 9,700 miles of interstate natural gas pipelines, storage fields, field system lines and related facilities, consisting primarily of two major interconnected natural gas transmission pipelines terminating in the Chicago area.

Under the acquisition agreement, a newly formed wholly owned subsidiary of MidCon will issue about $3 billion of debt prior to closing, the proceeds of which will be held in escrow and used to repay debt owed to Kinder Morgan.

Between the proceeds from the sale of MidCon and the debt financing, Kinder Morgan expects to receive approximately $5.3 billion of after-tax cash proceeds.

Kinder Morgan plans to use virtually all of the cash proceeds to repay debt, starting with the debt it incurred in connection with its going-private transaction. Once that debt is repaid, the company will no longer have any material secured debt, the filing said.

Closing of the transaction is expected to occur in the first quarter of 2008, subject to the satisfaction or waiver of certain conditions, including receipt of applicable regulatory approvals.

Kinder Morgan is a Houston-based energy infrastructure provider.

Tribune up on financials

Tribune's term loan B also was a heavy mover on Wednesday, as levels noticeably improved following the announcement of November numbers, according to traders.

The term loan B ended the day at 86½ bid, 87½ offered, according to one trader, and at 86¾ bid, 87¼ offered, according to a second trader, up from Tuesday's levels of 84½ bid, 85½ offered.

For the month of November, the company reported consolidated revenues of $413 million, down 3.3% from last year's $428 million. Consolidated operating expenses were 5% lower than the same period last year.

One trader explained that although revenues were down, they were still better than previous monthly performances. For example, for the month of October, revenues had been down 9.3% on a year-over-year basis.

In addition, Tribune also announced that it expects to complete its disposition of the Chicago Cubs, Wrigley Field and related real estate and its interest in Comcast SportsNet Chicago in the first half of 2008. It plans to use the proceeds to repay existing debt.

"Some people seem to be positively inclined by it - saying they're selling the Cubs - but that was already out there," another trader remarked. "I don't see a buyer mentioned so I don't know what's really new there."

The trader went on to say that maybe the financials and the asset sale update settled some nerves that got rattled when the company revealed that it would be paying down its bridge loan commitment.

Last week, the Chicago-based media company said that it plans to reduce its $2.1 billion bridge loan commitment to $1.6 billion through the use of $500 million of available cash.

The bridge facility backs a proposed bond offering that is part of the company's second-step financing for its going-private transaction.

In order for the company to be able to complete the second stage of the public-to-private transaction, a leverage condition must be met.

Based on the paydown news, people started to assume that the debt reduction might be necessary in order for the leverage condition to be met, and if that was the case, then the financials released by the company would likely be negative.

The other thing that caught investors off guard was that they were assuming the first paydown to happen would be on the term loan X that only has a tenor of 18 months from the time it closed, and from a first-lien perspective, people were upset because they still hold the bulk of the debt and they're losing cash that backs it to the bridge loan paydown.

"Numbers weren't as bad as people feared and now they know they can expect a paydown," the trader added.

LCDX, cash better with stocks

LCDX 9 and the cash market in general were both higher during the session as they tracked equities, according to traders.

The index went out around 96.95 bid, 97.15 offered, up from around 96.40 bid, 96.60 offered, traders said.

And the cash market was up by about an eighth of a point in medium-to-light volume, traders added.

Nasdaq closed up 18.79 points, or 0.71%, Dow Jones Industrial Average closed up 41.13 points, or 0.31%, S&P 500 closed up 8.94 points, or 0.61%, and NYSE closed up 83.38 points, or 0.85%.

Education Media delayed

Moving to the primary, Education Media & Publishing has decided to pull its $7.15 billion credit facility from market and come back with it sometime next year due to current market conditions, according to an informed source.

The credit facility, which funded on Wednesday, consists of a $500 million six-year revolver (B1/B) at Libor plus 375 basis points, with a 50 bps commitment fee, a $4.95 billion 61/2-year first-lien term loan (B1/B) at Libor plus 375 bps and a $1.7 billion seven-year second-lien mezzanine loan (Caa2/CCC) at Libor plus 850 bps.

The first-lien term loan carries call protection of 103 in year one, 102 in year two and 101 in year three, and the second-lien term loan is non-callable for 18 months, then at 104 for a year, at 102 for a year and at par after that.

It was obvious that things weren't going so well for the deal when during syndication the banks decided to only offer a fraction of the term loan debt as opposed to the whole thing and the original issue discount on the first- and second-lien term loans was increased.

Of the total first-lien term loan amount, the banks were going to offer $1.5 billion, and of the total second-lien term loan amount, the banks were going to offer $850 million.

As for the original issue discount, the first-lien term loan discount was changed to 96 from the 99 area and the second-lien term loan discount was changed to 96 from 98.

Credit Suisse, Lehman Brothers and Citigroup are the lead banks on the deal.

Proceeds from the credit facility are being used to help fund Houghton Mifflin Co.'s acquisition of the Harcourt Education, Harcourt Trade and Greenwood-Heinemann divisions of Reed Elsevier for $4 billion, consisting of $3.7 billion in cash and $300 million of common stock of Houghton Mifflin Riverdeep Group plc, Houghton Mifflin's parent company.

In connection with the acquisition, Boston-based Houghton Mifflin is being renamed Education Media & Publishing.

Consolidated Communications sets talk

Consolidated Communications came out with price talk of Libor plus 250 bps, at an original issue discount of 99, on its in-market $760 million seven-year funded term loan, according to a market source.

The term loan is part of a $950 million senior secured credit facility (B1/BB-) that was launched to investors with a conference call on Tuesday and includes a $140 million delayed-draw term loan and a $50 million six-year revolver that has a 50 bps commitment fee.

Financial covenants include a maximum total net leverage ratio of 5.50 to 1.00 - provided that on the fiscal quarter end occurring immediately after the first anniversary of the closing date, the ratio will step down to 5.25 to 1.00 - and a minimum interest coverage ratio of 2.25 to 1.00.

Wachovia is the lead arranger and bookrunner on the deal, which will be used to help fund the acquisition of North Pittsburgh Systems, Inc. for $375.1 million, to provide ongoing working capital and for other general corporate purposes.

The delayed-draw term loan, which is delayed draw until May 1, 2008 and has a seven-year final maturity, will be used for the repurchase or redemption in full of the company's existing 9¾% senior notes due 2012.

Pro forma leverage will be 4.4 times net debt to last-12-months adjusted EBITDA.

The acquisition is expected to close on Dec. 31.

Consolidated Communications is a Mattoon, Ill.-based rural local exchange company. North Pittsburgh is a Gibsonia, Pa., provider of telecommunication services.

FGX well received

FGX International Holdings Ltd.'s $175 million senior credit facility is currently oversubscribed, according to a market source.

The facility consists of a $75 million revolver and a $100 million term loan, with both tranches talked at Libor plus 175 bps.

The revolver has a 30 bps commitment fee and a $50 million accordion feature.

SunTrust is the lead bank on the deal, which will be used to repay existing debt and for working capital.

Covenants include a leverage test and a fixed-charge coverage ratio.

Leverage is 2.3 times.

FGX is a Smithfield, R.I.-based designer and marketer of non-prescription reading glasses, sunglasses and costume jewelry.

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