Education Management fluctuates with fraud charges; FairPoint rises; Henniges pulls deal

By Sara Rosenberg

New York, Aug. 9 - Education Management Corp.'s term loans have been bouncing around in trading since news emerged that the company is facing a lawsuit from the Department of Justice regarding accusations of fraud.

Also in trading, FairPoint Communications Inc.'s term loan headed higher on the back of favorable earnings results as well as with some improvement to the general secondary market tone.

Meanwhile, over in the primary, Henniges Automotive removed its proposed credit facility from market, and Plaze Inc. postponed the launch of its new deal, with the expectation being that the meeting will now be next week.

Furthermore, Insight Global Inc. and Phillips Plastics Corp. are now planning to wrap their credit facilities at initial terms, as market conditions have curtailed prior hopes for issuer-friendly changes.

Education Management seesaws

Education Management's term loans were all over the place on the back of news that the Department of Justice has joined a pending whistleblower suit and filed a complaint, accusing the company of fraud, according to traders.

One trader had the non-extended term loan quoted at 87 bid, 91 offered versus levels of 89 bid, 93 offered prior to the news on Monday, and the extended term loan at 85 bid, 89 offered, compared to 88½ bid, 91 offered previously.

A second trader, meanwhile, had the extended term loan quoted at 83 bid, 88 offered on Tuesday, after seeing it drop to 74 bid, 78 offered late Monday when the news came out.

In the complaint, the government alleges that Education Management falsely certified compliance with provisions of federal law that prohibit a university from paying incentive-based compensation to its admissions recruiters tied to the number of students they recruit.

DOJ asking for funds back

Through the lawsuit against Education Management, the government is seeking to recover a portion of the $11 billion of federal student aid, which the company allegedly obtained through false statements.

The Department of Justice said in a news release that the incentive compensation law was put in place since the payment of bonuses and commissions to recruiters resulted in the enrollment of unqualified students, high student loan default rates and the waste of program funds.

The suit was originally filed by Lynntoya Washington, a former admissions recruiter for the company who later filed an amended complaint, jointly with Michael T. Mahoney, a former director of training for the company's online higher education division.

Education Management is a Pittsburgh-based provider of private post-secondary education.

FairPoint gains ground

FairPoint Communications' term loan headed to 80½ bid, 81½ offered, from 77 bid, 79 offered, as the company released second-quarter results late Monday that showed a smaller net loss when compared to the 2010 quarter, according to a trader.

Specifically, for the quarter, the company's net loss was $27.1 million, versus a net loss of $54.2 million in the previous year.

The company reported revenue for the quarter of $262.6 million, compared to $271.6 million in the second quarter of 2010.

And, consolidated EBITDAR was $70.5 million in the second quarter, compared to $72.3 million a year earlier.

FairPoint is a Charlotte, N.C.-based communications provider of high-speed internet access, local and long-distance phone, television and other broadband services.

Henniges tables deal

Switching to the primary, Henniges Automotive withdrew its $155 million credit facility (B1/B) as market conditions were unfavorable for the completion of the refinancing and dividend funding deal, according to a market source.

The facility consisted of a $20 million revolver and a $135 million term loan, both talked at Libor plus 600 basis points with a 1.5% Libor floor and an original issue discount of 99. The term loan had 101 soft call protection for one year.

Credit Suisse Securities (USA) LLC, Macquarie Capital and PNC Capital Markets LLC were leading the transaction.

Henniges Automotive is a Farmington Hills, Mich.-based provider of sealing system services to the automotive market.

Plaze pushes off meeting

Plaze opted not to hold its bank meeting on Tuesday and, instead, is now looking at Aug. 16 or Aug. 17 as the dates for its launch, according to a market source.

As was previously reported, the company plans to come to market with a $150 million senior credit facility that consists of a $20 million revolver and a $130 million term loan.

GE Capital Markets and PNC Capital Markets LLC are the lead banks on the deal that will be used, along with $50 million of mezzanine debt, to fund the buyout of the company by Olympus Partners.

Leverage through the senior facility is 3.75 times and leverage through the mezzanine financing is 5.25 times.

Plaze is a St. Clair, Mo.-based full service contract aerosol and liquid packager.

Insight Global allocations

Insight Global is targeting allocating its $177 million credit facility (B1/B+) by the end of this week as the oversubscribed deal is now expected to close at initial terms instead of undergoing some issuer-friendly revisions, a market source told Prospect News on Tuesday.

The source explained that while a flex wasn't being considered, there were some other changes being looked at, but market conditions changed that possibility.

The facility consists of a $157 million term loan B priced at Libor plus 500 bps with a 1.5% Libor floor and an original issue discount of 99½ on new money and a $20 million revolver.

BNP Paribas Securities Corp. is the lead bank on the deal that will be used to refinance senior and mezzanine debt.

Pro forma leverage at the Atlanta-based Information Technology employment firm is 2.95 times.

Phillips firms

Phillips Plastics' $245 million credit facility (B1/B) is in a similar situation to Insight Global, where the deal was oversubscribed and there had been chatter about possible changes. But now because of market conditions, terms finalized at initial talk, according to a market source.

The facility consists of a $45 million revolver and a $200 million term loan, with both tranches priced at Libor plus 500 bps with a 1.5% Libor floor and an original issue discount of 99.

Allocations are anticipated to go out this week, the source added.

GE Capital Markets and BNP Paribas Securities Corp. are the lead banks on the deal that will be used to fund an acquisition.

Phillips Plastics is a Hudson, Wis.-based outsource provider of design and manufacturing services to the commercial and medical device and drug delivery markets.

Reynolds wraps loan

In other news, Reynolds Group completed the amendment to its existing senior secured credit facility, under which lenders committed to provide a new $2 billion senior secured term loan due August 2018 (Ba3/BB-), according to a news release.

Pricing on the new term loan is Libor plus 525 bps with a 1.25% Libor floor, and it was sold at an original issue discount of 99. There are two years of 101 soft call protection and a delayed-draw fee that is the full spread for 90 days from closing.

And, pricing on the company's existing term loan due February 2018 is being revised Libor plus 525 bps with a 1.25% Libor floor from Libor plus 325 bps with a 1% floor. This tranche is getting 101 soft call protection for one year.

During negotiations, the delayed-draw fee on the new loan was revised from half the spread for 30 days and the full spread thereafter, call protection was added to the new and existing loans, and a 5 bps amendment fee was added.

Reynolds acquiring Graham

Proceeds from Reynolds' new term loan, cash on hand, $1.5 billion of 7 7/8% senior secured notes and $1 billion of 9 7/8% senior unsecured notes will be used to fund the purchase of Graham Packaging Co. Inc. for $25.50 per share, or a total of about $4.5 billion, including assumed debt.

The senior unsecured notes were upsized from $500 million, with the additional proceeds earmarked for the repurchase of any Graham senior notes that are tendered in connection with change of control offers at 101. Any remaining proceeds will be used to repay other debt.

Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. led the term loan.

Closing on the acquisition is expected in the second half of this year, subject to customary regulatory approvals and conditions, including the approval of Graham's stockholders.

Reynolds is an Auckland, New Zealand-based manufacturer and supplier of consumer food and beverage packaging and storage products. Graham is a York, Pa.-based supplier of plastic containers.

VCA Antech buys MediMedia

VCA Antech Inc. closed on its acquisition of MediMedia Animal Health LLC from MediMedia USA Inc. for $146 million in cash, according to a news release.

To help fund the transaction, VCA got a $100 million term loan A add-on priced at Libor plus 175 bps and repriced its existing $500 million term loan A and $100 million revolver at Libor plus 175 bps from Libor plus 225 bps.

Wells Fargo Securities LLC and Bank of America Merrill Lynch led the deal.

VCA Antech is a Los Angeles-based animal health care company. MediMedia is a Yardley, Pa.-based provider of online communications, professional education and marketing services to the veterinary community.

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