Lear down with downgrade; GM, Ford hold steady while cash slide continues; U.S. Silica launches

By Sara Rosenberg

New York, Oct. 16 - In Thursday's secondary market, Lear Corp.'s term loan headed lower as the company's ratings were downgraded, General Motors Corp. and Ford Motor Co. both saw their term loans hold firm even though the rest of the cash market continued to weaken, and LCDX 10 ended the day unchanged despite the run up in stocks.

In other news, U.S. Silica Co. brought its proposed term loan to market on Thursday afternoon, and although the loan is being labeled as an A tranche, it is being marketed to a variety of lenders.

Lear term loan trades down

Lear's term loan weakened by a couple of points during market hours as Standard & Poor's downgraded the company's ratings, but with the condition of the market being so negative, it was hard to tell whether the drop was a result of the downgrade, a result of the overall market performance or a combination of the two factors, according to a trader.

The term loan was quoted at 60 bid, 62 offered, down from Wednesday's closing levels of 65 bid, 67 offered, the trader said.

On Thursday, S&P lowered Lear's corporate credit rating to B from B+ and senior secured bank debt to BB- from BB. The outlook is negative.

Lear downgrade reflects tough market

S& said that Lear's ratings were lowered since sales and cash flow have the potential to be weaker than expected in 2009, resulting in credit measures that are inconsistent with the previous rating.

For the current rating, the agency now expects adjusted debt to EBITDA to exceed 4.0 times but be less than 5.0 times.

"Falling auto demand in North America and Europe and ongoing adverse shifts in product mix toward smaller passenger cars in the U.S. are the main reasons for the downgrade," said Lawrence Orlowski, credit analyst, in the rating release.

"We now expect U.S. light-vehicle sales to be 13 million units in 2009, and light-vehicle sales in Europe are continuing to weaken. We believe the weak economy will extend well into 2009 and suppress purchases of big-ticket items such as autos, so we do not expect production for many of Lear's key SUV and full-size pickup truck platforms to rebound in the near term," Orlowski added.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

GM, Ford unchanged in down market

General Motors' and Ford's term loans, unlike the rest of the market, did not experience any downward pressure on Thursday, with speculation being that these names have been beaten up so badly recently that they just can't go much lower.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 41 bid, 45 offered, unchanged from previous levels, the trader said.

And Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 42 bid, 46 offered, also unchanged on the day, the trader remarked.

"Down 30 points [over the last couple of weeks]. At some point recovery is just going to factor into these things," the trader said in explanation of why these names were not impacted by the overall negative tone in the market.

Cash market slips lower

Meanwhile, the cash market in general definitely had a softer feel to it during trading hours on more of the same issues - more sellers than buyers, according to traders.

The par loan market was described as being down about one to two points on the day and the stressed/distressed loan market was labeled as weaker by three to five points, traders said.

"We're just seeing more of the same thing in our market. Everything down. Same thing every day," one trader added.

LCDX 10 steady

LCDX 10 bounced around during the session with levels moving lower early on in the day, but the index inched its way back up so as to end the pretty much day in line with previous levels, according to a trader.

The index went out around 83 bid, 84 offered, compared to Wednesday's levels of 83.5 bid, 84 offered, the trader said.

However, on Thursday, the index did reach a low of 81.5 bid, 82.25 offered, the trader added.

Stocks, on the other hand, closed the session higher, with Nasdaq up 89.38 points, or 5.49%, Dow Jones Industrial Average up 401.35 points, or 4.68%, S&P 500 up 38.59 points, or 4.25%, and NYSE up 210.94 points, or 3.66%.

U.S. Silica A loan launched to mix of lenders

Switching to primary happenings, U.S. Silica held a bank meeting at 2:30 p.m. ET in New York on Thursday to kick off syndication on its proposed $145 million seven-year term loan A, according to a market source.

Despite being called a term loan A, the deal is being marketed to a combination of banks and institutional investors, the source said.

There has been no pre-marketing stage for this term loan and, currently, the company does not have an existing lender base. The source explained that the company did get a credit facility about a year and a half ago, but that debt has already been taken out.

U.S. Silica does have an existing $35 million ABL revolver that is going to remain in place following completion of the new term loan.

U.S. Silica price talk Libor plus 550 bps

As was previously reported, U.S. Silica's term loan A is being talked at Libor plus 550 basis points with a 3.25% Libor floor and an original issue discount of 97.

Amortization on the term loan is 2% in the first two years, 11% in year three, 12% in year four, 15% in years five and six, and the remainder in year seven, the source remarked.

Covenants include total leverage, minimum interest coverage and minimum fixed charge coverage.

BNP Paribas is the sole lead bank on the deal.

Proceeds will be used to help fund the leveraged buyout of the company by Golden Gate Capital and Preferred Unlimited.

Total leverage will be in the 4½ times range and senior leverage will be 3.0 times.

Commitments from lenders are due some time around late this month or early November, the source added.

U.S. Silica is a Berkeley Springs, W.Va.-based producer of ground and unground silica sand, kaolin clay, aplite and related industrial minerals.

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