Blockbuster strengthens with Circuit City bid; LCDX inches up; Venture Transport tweaks deal

By Sara Rosenberg

New York, April 14 - Blockbuster Inc.'s term loan gained some ground on Monday in the wake of a hostile bid for Circuit City Stores Inc., and LCDX 10 was minimally better in an overall quiet secondary market.

In other news, Venture Transport Logistics LLC made some changes to its credit facility, including reducing the size of its term loan B, revising amortization and changing the excess cash flow sweep.

Blockbuster's term loan moved higher during the trading session on news that the company made a bid to purchase Circuit City, according to traders.

The term loan was quoted at 92 bid, 93 offered, up a quarter of a point from Friday's levels, traders said.

"Whether by refi in a deal or more collateral under the banks, the par recovery prospects might be seen as improving," one trader added in explanation of the term loan's performance.

On Monday morning, Blockbuster announced that is has offered to acquire Circuit City somewhere in the range of $6 to $8 per share in cash, subject to due diligence.

Blockbuster said that the offer was originally made in a letter sent to Circuit City chairman and chief executive officer Philip Schoonover on Feb. 17, but Circuit City failed to provide due diligence necessary to allow Blockbuster to make a definitive proposal.

Blockbuster is now making the offer public "because it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company.

"In addition, as Blockbuster has other strategic opportunities, its offer is conditioned upon timely commencement of the due diligence process," the company said in a news release.

Most of the cash necessary for the acquisition would be generated through the issuance of additional Blockbuster equity, most probably in a rights offering to existing shareholders. The borrowing capacity of the combined business would provide the remaining cash proceeds.

Blockbuster also revealed on Monday that it expects first quarter 2008 adjusted EBITDA to be about $110 million versus $23 million for the same period last year, and net income for the first quarter should be $30 million, compared to a net loss of $49 million for the first quarter of 2007.

Blockbuster is a Dallas-based provider of in-home movie and game entertainment.

LCDX slightly stronger

LCDX 10 was touch higher during the Monday session, although volume in the index, as well as in cash, was pretty light, according to traders.

The index was quoted at 96.90 bid, 97.05 offered, up from Friday's levels of 96.85 bid, 96.95 offered, the traders added.

Venture Transport fine tunes structure

Moving to the primary market, Venture Transport modified its credit facility on Monday by downsizing its term loan B, increasing amortization and increasing the excess cash flow sweep, according to market sources.

Under the changes, the term loan B is now sized at $140 million, down from $150 million, while price talk on the tranche was left unchanged at Libor plus 500 basis points, with a 3.25% Libor floor and an original issue discount of 98.

Amortization on the term loan B was revised starting in 2009 to 5% per annum with a bullet at maturity in 2014, from the previously proposed 1% per annum, sources said. Amortization in 2008 is 0.5%.

And, lastly, the excess cash flow sweep was increased to 75% from 50%, with step-downs to be determined, sources continued.

The company's now $190 million, down from $200 million, senior credit facility also includes a $50 million revolver that is talked at Libor plus 500 bps, with a 3.25% Libor floor and an original issue discount of 98.

GE Capital and CIT are the lead banks on the deal that will be used to help fund the acquisition of Ace Transport Inc. and refinance existing debt.

In order to make up for the lost funds from the term loan B downsizing, Venture Transport's owner, Welsh, Carson, Anderson & Stowe, will contribute an additional $10 million of equity to the deal.

In total, Welsh Carson will now be providing $45 million of subordinated holdco notes and $100 million of new preferred equity.

With the additional equity contribution, the equity and Welsh Carson held holdco notes increased to 53.7% from 52.1% of the capital structure.

The reduction in the term loan B size effectively provides advance amortization of 7% and reduces leverage to 2.8 times senior/total through the opco, and 3.7 times through the holdco notes, sources remarked.

By comparison, under the original structure, senior leverage was 3.0 times and leverage through the holdco notes was 3.9 times.

Commitments are due from lenders by 5 p.m. ET on Wednesday and closing is anticipated to take place on April 23.

Venture Transport, a Welsh, Carson, Anderson & Stowe portfolio company, is a Lafayette, La.-based provider of expedited land transportation and logistics services.

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