MoneyGram ups discount; Xerium widens with covenant issues; Cash, LCDX rise

By Sara Rosenberg

New York, March 18 - In primary happenings on Tuesday, MoneyGram International Inc. increased the original issue discount on its upsized term loan B.

Meanwhile, over in the secondary, Xerium Technologies Inc.'s term loan saw bids move lower after the company announced that it may bump up against covenants and warned that, without an amendment, bankruptcy could be a possibility.

Also in trading, cash and LCDX 9 were better during market hours as stocks got a huge boost from the latest Federal Open Market Committee rate cut.

Moneygram widened the original issue discount on its $250 million five-year senior term loan B to 93½ from the originally proposed level of 95, according to a market source.

The term loan B is priced at Libor plus 500 basis points, with a 2.5% Libor floor, and call protection of 102 in year one and 101 in year two.

Also during syndication, the term loan B was upsized from $200 million after the company amended its recapitalization that is being led by Thomas H. Lee Partners LP and Goldman Sachs.

Covenants include a senior secured debt ratio and a ratio of minimum EBITDA to cash interest expense.

JPMorgan is the lead bank on the term loan B that will be used to repay revolver borrowings and for general corporate purposes.

Moneygram's recapitalization is expected to close on March 25.

Under the revised recapitalization agreement, the investors will purchase $760 million of series B and series B-1 preferred stock, which will initially be convertible, at a price of $2.50 per share, into about 79% of the common equity of the company.

In addition, the company will be getting a $500 million 13¼% 10-year senior second-lien note that is non-callable for five years from affiliates of Goldman Sachs.

In connection with the recapitalization, MoneyGram plans to keep its existing $350 million credit facility in place and is seeking amendments from lenders to modify certain terms and ensure that the facility remains available.

The existing facility is comprised of a $250 million revolver and a $100 million term loan A. Through the amendment, pricing on the two tranches would move to Libor plus 350 bps, the revolver would have a 50 bps commitment fee, and the maturities would be extended so that the debt is due in five years, according to previous filings with the Securities and Exchange Commission.

The recapitalization is designed to provide sufficient capital to support realignment of the company's portfolio away from the risk associated with the asset-backed security market and to provide sufficient financial flexibility to support the long-term needs of the business after the realignment.

MoneyGram recently completed the sale of certain portfolio assets, resulting in a total loss of some $1.6 billion.

The company's investment portfolio currently consists primarily of cash and cash equivalents, U.S. agencies and agency residential mortgage-backed securities.

Closing of the recapitalization is conditioned on, among other things, financing, the amendment of the credit facility and there being no "material adverse effect" on the company.

MoneyGram is a Minneapolis-based provider of payment services.

Delphi deadline nears

The deadline for Delphi Corp.'s revised exit financing credit facility is fast approaching as lender commitments are due on Wednesday, according to a market source.

"They are still working on it. I can't give a percentage on how much is in, but they are working on it," a buy side source added.

The facility consists of a $1.7 billion first-lien term loan (Ba2/BB-), a $2 billion first-lien term note (B2/B) to be issued to an affiliate of General Motors Corp. (junior to the $1.7 billion term loan), an $825 million second-lien term loan (B3/B-), of which any unsold portion would be issued to General Motors and/or its affiliates, and a $1.6 billion ABL revolver.

Price talk on the $1.7 billion first-lien term loan is Libor plus 575 bps, with a 3.25% Libor floor for life, an original issue discount of 92, and call protection of 102 in year one and 101 in year two.

Price talk on the second-lien term loan is Libor plus 875 bps, with a 3.25% Libor floor for life, an original issue discount of 92, and call protection of 103 in year one and 101½ in year two.

And, price talk on the ABL revolver is Libor plus 300 bps.

When the company first launched its exit facility in early January, the deal was comprised of a $3.7 billion first-lien term loan (Ba3/B+), an $825 million second-lien term loan (B3/B-), of which $750 million was expected to be issued to General Motors in connection with plan of reorganization distributions, and a $1.6 billion ABL revolver.

The first-lien term loan had been launched at Libor plus 450 bps, with an original issue discount of 96 and call protection of 102 in year one and 101 in year two.

The ABL revolver had been launched with talk of Libor plus 250 bps.

Also, initially, the second-lien loan was going to be sized at $1.5 billion, but it was downsized prior to the first launch as a result of a permanent improvement in liquidity as the company generated cash flow during the second half of 2007 in excess of the amount projected in its revised business plan.

JPMorgan and Citigroup are the lead banks on the deal that will be used to repay the company's debtor-in-possession financing facility, to fund other payments required upon emergence from Chapter 11 and to conduct post-reorganization operations.

The credit facility is being done on a best efforts basis.

Delphi is a Troy, Mich.-based automotive electronics manufacturer.

Xerium bid slips

Switching to the secondary, Xerium's term loan levels widened on Tuesday as the company revealed possible covenant problems that could, in a worse case scenario, result in a bankruptcy filing, according to a trader.

The term loan was quoted at 83½ bid, 86½ offered, compared to previous levels of 84½ bid, 86½ offered, the trader said.

"A lot of price discovery. Haven't seen active flows," the trader said regarding Xerium's term loan.

"It's just quoted wider. My guess is that they'll probably just amend. Bankruptcy stuff is more to shock people into working with them. I don't think that's the route they're going on," the trader added.

On Tuesday morning, Xerium said that it is seeking an amendment to the financial covenants under its credit facility to avoid possible non-compliance in the first quarter and future periods.

The company said that if it fails to meet the financial covenants, it would be in default under the facility and lenders could accelerate the debt.

"If this were to occur, the company would need to consider all options available to it, which could include a possible bankruptcy filing," a Xerium press release said.

Furthermore, if the company is not able to address the financial covenant non-compliance issues, its independent auditors would likely need to include an explanatory paragraph in their opinion with respect to financial statements for the year ended Dec. 31, expressing doubt about the ability of the company to continue as a going concern.

The company also said that it is currently in talks with potential investors regarding a private placement of equity securities, the net proceeds of which would be uses to pay down bank debt.

Xerium is a Youngsville, N.C.-based manufacturer of clothing and roll covers used primarily in the paper production process.

Cash, LCDX trade up

The cash market in general and LCDX 9 were both stronger during the trading session as positive sentiment from the run up in equities spilled over into the loan market, according to a trader.

Cash was up by about half a point on the day and LCDX was quoted at 92.40 bid, 92.50 offered, up from 91.25 bid, 91.35 offered, the trader said.

The trader went on to explain that the rally in bank loans was not as great as in stocks because the reduction in interest rates affects the amount of interest that loan investors get, meaning that the rate cut does carry a bit of a negative side for loan guys.

General market sentiment is better. [But the] cash market has underperformed equities and unsecureds," the trader added.

On Tuesday, the Federal Open Market Committee announced that federal funds are being lowered by 75 bps to 2.25%.

Also, the Board of Governors unanimously approved a 75 bps decrease in the discount rate to 2.5%.

In reaction to the rate cuts, stocks rose, with Nasdaq up 91.25 points, or 4.19%, Dow Jones Industrial Average up 420.41 points, or 3.51%, S&P 500 up 54.14 points, or 4.24%, and NYSE up 337.06 points, or 3.97%.

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