LandSource slides on lender call; LCDX, cash trade down; Solutia, Goodman tweak deals

By Sara Rosenberg

New York, Feb. 4 - LandSource Communities Development LLC's first-lien term loan B headed lower on Monday after the company held a private lender call focused on a recent land appraisal, and LCDX 9 and cash both softened with equities.

In other news, Solutia Inc. modified its exit financing credit facility, increasing the original issue discount on its term loan B while also adding a Libor floor to the tranche and upsizing its ABL revolver. And, in response to these actions, the company's debtor-in-possession financing facility traded higher.

Also, Goodman Global Inc. came out with official changes to its credit facility, increasing term loan B pricing and discount, and adding a Libor floor as well.

LandSource Communities saw its first-lien term loan come under some pressure during Monday's market hours after a lender-only call was held to discuss a new land appraisal, the equity sponsors' stance and potential action to be taken by senior lenders, according to a trader.

Recently, the company did a new appraisal on its land that showed deterioration in the underlying value of that land, the trader said.

As a result, there's potential that the company is in default under its credit facility since the collateral is worth less than it was when it was first appraised. "They could trip the borrowing base covenant," the trader explained.

When the appraisal news first hit the market last week, speculation was that the sponsors would put in more equity, which caused the first-lien loan to rise to the 79 bid, 81 offered context and remain there through Friday.

However, following Monday's private call, the first-lien term loan was being offered in the high 70s, but there was really no bid side to be seen, the trader continued. There was also a rumor that a trade went off at 72, the trader added.

LandSource is a joint venture between Lennar Corp., LNR Property Corp. and MW Housing Partners. Its primary investment is Newhall Land and Farming Co., which owns 15,000 acres in Santa Clarita Valley, Calif.

LCDX, cash weaken

Also in trading, LCDX 9 and the cash market in general both felt lower as stocks were softer, according to traders.

The index went out around 92.65 bid, 92.75 offered, down from around 93 bid, 93.20 offered on Friday, traders said.

And, the cash market was off by about a quarter of a point, traders added.

Nasdaq closed down 30.51 points, or 1.26%, Dow Jones Industrial Average closed down 108.03 points, or 0.85%, S&P 500 closed down 14.60 points, or 1.05%, and NYSE closed down 75.47 points, or 0.81%.

Solutia reworks exit facility

Solutia came out with some revisions to its exit financing senior secured credit facility, including a bigger original issue discount and a Libor floor on the term loan B, and an increase to the size of the ABL revolver, according to a market source.

The $1.2 billion seven-year term loan B (B1/B+) is now being offered to lenders at a discount of 91, compared to initial guidance that was in the 96 area, and a three-year Libor floor of 3.25% was added to the deal, the source said.

Actual spread on the term loan B was left in line with original talk at Libor plus 350 basis points, the source continued.

Meanwhile, the five-year asset-based revolver (Ba1) was increased to $450 million from $400 million, while pricing was left unchanged at Libor plus 175 bps, the source remarked.

The original issue discount on the term loan B will be funded by a draw on the upsized ABL revolver.

Also under the changes, the accordion features under both the term loan B and the ABL revolver were eliminated, the source added.

Citigroup, Goldman Sachs and Deutsche Bank are the joint lead arrangers and joint bookrunners on the now $1.65 billion deal, up from $1.6 billion.

Proceeds from the facility, along with senior unsecured notes, will be used to pay creditors under the company's plan of reorganization and to fund ongoing operations after its emergence from Chapter 11.

The notes are talked at 12.5% at 93 for a yield of 13.97%. They have a face amount of about $430 million, but net proceeds will be about $400 million.

There has been some recent controversy surrounding the exit facility and bonds as the underwriters and the company quarreled over whether the debt commitment is still valid.

On Jan. 23, the company said that the banks were arguing that an adverse change has occurred in the loan syndication, financial or capital markets since Oct. 25 that, in their reasonable judgment, materially impairs syndication of the proposed facility.

Under the credit facility commitment, if an adverse change has occurred since that Oct. 25 date, the banks are no longer obligated to provide the financing.

However, the company was saying that the ongoing conditions in the credit markets began long before Oct. 25 and, therefore, the banks are required to fund their commitments on or before the Feb. 29 deadline.

Then, this past Friday, Solutia said in an 8-K filing that the lead arrangers on the credit facility refused a company demand to close and fund their commitments by Feb. 6, restating their claim that market conditions have hurt their attempt to complete the financing package.

Solutia said the refusal constitutes a breach of the commitment letter.

According to the market source, the changes made to the credit facility on Monday are part of a "continuing effort on behalf of the underwriters to sell the deal."

On the heels of the exit facility revisions, the company's DIP term loan moved higher in trading, with levels going out at 98¼ bid, 99¼ offered, up from 97¼ bid, 98¼ offered, a trader added.

Solutia is a St. Louis-based manufacturer and provider of performance films, specialty chemicals and an integrated family of nylon products.

As a result of the financing troubles, Solutia's effective date of its confirmed plan of reorganization and its emergence from Chapter 11 has been delayed from the previously anticipated Jan. 25 date.

Goodman revises terms

Goodman Global also announced changes to its term loan B on Monday, including flexing pricing higher, widening the original issue discount and adding a Libor floor, according to a market source.

The $800 million term loan B (Ba3/BB) is now priced at Libor plus 425 bps, up from initial talk of Libor plus 375 bps, the original issue discount is now set at 96, up from 981/2, and a 3.25% Libor floor to maturity was added, the source said.

Commitments are due on Wednesday at 12 p.m. ET.

Speculation on modifications to the term loan B has been floating around the market for a little while now and some accounts were even given an indication on where things might fall out. For example, one fund manager said last week that he was told that pricing could go to Libor plus 425 bps at a discount of 96, with a 3% Libor floor.

Goodman's $1.1 billion senior secured credit facility also includes a $300 million ABL revolver priced at Libor plus 200 bps.

Barclays Capital, Calyon and GE Capital are the lead banks on the deal, with Barclays the left lead on the term loan B and GE the left lead on the revolver.

Proceeds will be used to help fund the buyout of the company by Hellman & Friedman LLC for $25.60 in cash per share. The transaction is valued at $2.65 billion.

Other financing will come from $500 million of senior subordinated financing from vehicles managed by GSO Capital Partners and Farallon Capital Management, LLC, according to filings with the Securities and Exchange Commission.

On a gross basis, senior leverage is 3.4 times and total leverage is 5.2 times.

Goodman Global is a Houston-based manufacturer of residential and light commercial heating, ventilation and air-conditioning equipment.

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