Fresenius Kabi widens OID, breaks for trading; Cash sees shortage of buyers; LCDX holds steady

By Sara Rosenberg

New York, Sept 26 - Fresenius Kabi came out with a change to its credit facility that involved increasing the original issue discount on its term loan B, and following this revision, the deal was allocated and then freed up for trading.

Meanwhile, the cash market in general is having a tough time finding buyers, but while some think money has dried up, others saw a few positive signs of buying interest towards the end of the Friday session.

Also in trading, LCDX 10 held firm on the day, whereas equities had mixed results.

Fresenius Kabi sweetened the original issue discount on its term loan B and then proceeded to give out allocations and watch the deal hit the secondary market, with levels on the B loan quoted slightly higher than the revised discount price, according to traders.

The $1.5 billion six-year term loan B ended up being sold to investors at an original issue discount of 98 as opposed to the 99 price that was announced at launch, traders said.

Pricing on the term loan B, however, was left unchanged at Libor plus 350 basis points with a 3.25% Libor floor.

Upon breaking for trading, the U.S. portion of the term loan B was quoted at 98¼ bid, 99¼ offered, and then by early afternoon, levels had moved in to 98 1/8 bid, 98 5/8 offered, traders remarked. At the end of the day, one trader was quoting the loan at 98 bid, 98½ offered.

"We saw a little activity, but my sense is it was pretty well put away," a trader remarked about the term loan B.

Earlier this week, the term loan B was upsized by $500 million from $1 billion as a result of it being oversubscribed.

It is assumed that with the B loan upsizing, the company's bridge loan was downsized to $800 million from $1.3 billion, but official confirmation was unavailable prior to press time. This bridge financing could be replaced by high-yield financing opportunities.

Fresenius Kabi's $2.95 billion senior credit facility (Baa2/BBB-), which was marketed to U.S. and European investors, also includes a $450 million five-year revolver and a $1 billion five-year term loan A, with both of these tranches priced at Libor plus 287.5 bps.

The revolver and the term loan A tranches were actually completely full from commitments that came in during the senior managing agents round that took place this summer. The retail syndication round didn't kick off until earlier this month.

In August, Fresenius said that during the senior managing agents phase of syndication, 20 of its key relationship banks from Europe, North America and Japan, acting as mandated lead arrangers and joint lead arrangers, provided strong commitments towards the deal, oversubscribing the target amount.

As a result of this strong demand that was received during the senior managing agents round, the structure on the facility had been revised prior to the start of the retail syndication round, with the term loan A moving to $1 billion from $900 million and the term loan B moving to $1 billion from $850 million.

The funds for the original upsizing were taken out of the bridge loan commitment, which, at that time, was revised to $1.3 billion from $1.65 billion.

Deutsche Bank, Credit Suisse and JPMorgan are the senior mandated lead arrangers on the credit facility, with Deutsche Bank the global coordinator.

The revolver has $200 million of uncommitted availability. Of the revolver amount, $150 million will be made available to APP Pharmaceuticals Inc. and $300 million, along with the $200 million uncommitted, will be made available to a financing subsidiary of Fresenius.

Financial covenants under the facility include a consolidated leverage ratio, a consolidated fixed-charge coverage ratio, an interest expense coverage ratio and limits amounts spent on capital expenditure.

Proceeds from the facility, along with the bridge loan, are being used to help fund the recently completed acquisition of APP Pharmaceuticals, refinance APP's existing senior credit facility, and for general corporate and working capital purposes.

Under the agreement, Fresenius Kabi purchased APP for $23 per share and a registered and tradable contingent value right that could deliver up to $6 per share, payable in 2011, if APP exceeds a cumulative adjusted EBITDA target for 2008 to 2010.

Fresenius Kabi is a Bad Homburg, Germany, infusion therapy and clinical nutrition company. APP is a Schaumburg, Ill., hospital-based injectable pharmaceutical company.

Buyers hard to find

The cash market in general was fairly quiet on Friday and some think it will stay that way for a while given the shortage of buyers in the current environment, but others saw a little money come in to the secondary late in the day giving them a slightly positive send off to the week.

"This market was predicated on new money and right now there's just no new money," one trader said. "It's not a matter of price. There's just no new money."

The trader explained that currently investors are basically just looking to swap debt. For example, if someone is trying to sell General Motors Corp.'s term loan, another person will say I'll take that loan if you buy my Ford Motor Co. debt. The trader said that no one is just willing to buy paper without getting rid of paper.

"I think things will be dead for a while. Eventually somebody's going to figure out how to finance it and [then things will pick up]," the trader added.

However, according to a second trader, there was a little bit of buying taking place late in the day Friday.

"Here at the end of the day, I've been lifted. My sense is people don't want to be short going into the weekend because if this bailout plan happens, you're going to see a nice pop. Things I'm getting lifted on are sold credits. Nothing overwhelming, but two here, two there," the second trader remarked.

The second trader also said that on the private side, people are now getting their paydown notices since its quarter-end and Libor needs to be reset. Being that some people know what cash they're getting back, and they're being paid down at par, they can buy some solid credits at a good discount with that cash.

The trader added that he didn't know if the paydown information had anything to do with the couple of sales he completed on Friday, but it's a possibility that it played a part.

"Pretty quiet day," a third trader said regarding the Friday trading session. "People did all the selling that they wanted to for now, and now they're waiting to see what happens on Monday with the bailout plan."

According to this third trader, the cash market overall was generally down anywhere from a half a point to a full point on the day, depending on the name, but there were also some things that were unchanged.

LCDX firm

LCDX 10 held steady during the trading session while stocks were more of a mixed bag, according to a trader.

The index was quoted around 93.60 bid, 93.80 offered, pretty much unchanged from Thursday's levels, the trader said.

As for equities, Dow Jones Industrial Average closed up 121.07 points, or 1.10%, and S&P 500 closed up 4.09 points, or 0.34%. However, Nasdaq closed down 3.23 points, or 0.15%, and NYSE closed down 37.41 points, 0.47%.

Alpharma rejects King bid

Back over on the new deal side of things, the board of directors of Alpharma Inc. unanimously rejected King Pharmaceuticals Inc.'s hostile takeover bid, a transaction which King is planning on getting a $1 billion senior secured credit facility to fund.

Alpharma said in an SC 14D9 filed with the Securities and Exchange Commission Friday that the $37 per share offer price from King is financially inadequate and not in the best interests of shareholders.

The company went on to urge shareholders not to tender shares pursuant to King's offer while it continues to pursue its previously announced process to explore all strategic alternatives to maximize shareholder value, including a possible sale of the company to King or to another party for a price in excess of $37 per share.

"We believe other offers or alternatives to the King offer may emerge from this process that will provide shareholders with greater value than $37 per share. Indeed, we have received expressions of interest from multiple parties who contacted us following King's public disclosure of its proposal or who our financial advisors solicited at our request," Dean Mitchell, president and chief executive officer of Alpharma, said in the filing.

"We have entered into confidentiality agreements with a number of these parties who have now begun their due diligence review, and have already received a written preliminary indication of interest for a business combination from a party that includes a per share price in excess of the King offer of $37 per share."

In response to Alpharma's statement, King said that its offer, which is not conditioned on financing, is the only outstanding offer for Alpharma

"Given the uncertainty in the financial markets, we believe it is in the best interests of Alpharma stockholders to consummate our transaction as quickly as possible. Our management team and financial and legal advisors are available to meet with Alpharma immediately," the King release said.

On Sept. 12, King announced the commencement of its tender offer for Alpharma's shares. The tender offer is currently scheduled to expire at 5 p.m. ET on Oct. 10.

To fund the buyout bid for Alpharma, King received a commitment for a new credit facility that consists of a $150 million five-year revolver, a $350 million five-year term loan A and a $500 million six-year term loan B.

Credit Suisse and Wachovia signed on as the joint lead arrangers and bookrunners on the deal, with Credit Suisse the administrative agent.

Pricing on the facility would be based on ratings. If the company's corporate credit rating are Ba3/BB-, pricing on the revolver and the term loan A would be Libor plus 400 basis points, and pricing on the term loan B would be Libor plus 450 bps. If the corporate rating are lower, pricing on the revolver and the term loan A would be Libor plus 425 bps, and pricing on the term loan B would be Libor plus 475 bps.

Original issue discounts and upfront fees would also be based on ratings. If the company's corporate credit rating is Ba3/BB-, the term loan A would be sold at an original issue discount of 98, the term loan B would be sold at an original issue discount of 97½ and the revolver would have 200 bps upfront fee. If the corporate rating is lower, the term loan A would be sold at 971/2, the term loan B would be sold at 97 and the revolver would have a 250 bps upfront fee.

The facility includes a 3% Libor floor.

On Thursday, Moody's Investors Service assigned a Ba2 rating to the proposed credit facility and a Ba3 corporate rating to King.

King is a Bristol, Tenn.-based integrated branded pharmaceutical company. Alpharma is a Bridgewater, N.J.-based specialty pharmaceutical and animal health company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.