Primary deals see pricing at tighter spreads as demand outweighs supply

By Sara Rosenberg

New York, June 14 - Spreads on new deals have gotten tighter and tighter as a result of light primary activity, according to market sources. Demand for bank loan paper is strong but there is not enough supply due to the lack of leveraged buyouts, so companies are managing to get credit facilities with relatively low interest rates. On the agenda for the primary during the week of June 17 are two fairly large deals - Giant Eagle's $550 million loan and Berry Plastics' $455 million loan - that are expected to do fine based on the strong technicals of the market.

Giant Eagle Inc. is scheduled to hold a bank meeting on Wednesday regarding its new $550 million secured credit facility, according to market sources. Salomon Smith Barney is the lead bank on the deal.

The loan consists of a $300 million term B loan and a $250 million pro rata portion, a market professional said. The term B is expected to mature in seven years and have an interest rate of Libor plus 225 basis points.

"The deal is anticipated at Ba3 and it has a spread of 225," a market professional said. "That's pretty tight."

"Grocery chains don't usually own a lot of their stores so it may not be a very attractive collateral package," said one fund manager who is watching the deal. "But, this company may be different. I haven't seen the books yet."

Also, coming up in the primary on Thursday is Berry Plastics Corp. bank meeting regarding its new fully secured $455 million credit facility, which will be used to fund the company's purchase by GS Capital Partners 2000 LP and repay outstanding debt, according to a syndicate source. Goldman Sachs and JPMorgan Chase are the lead banks on the deal.

The Evansville, Ind. injection-molded plastic company's loan consists of a $100 million six-year revolver with an interest rate of Libor plus 275 basis points, a $50 million six-year delayed draw term loan with an interest rate of Libor plus 275 basis points and a $305 million eight-year term loan B with an interest rate of Libor plus 325 basis points, the syndicate source said. There is a 50 basis points commitment fee on the revolver and a 75 basis points commitment fee on the delayed draw term loan.

Berry Plastics is considered to be a highly leveraged company, according to market sources, however, since market demand outweighs supply, the deal is expected to get done.

However, there may be a slight hitch in the near future due to the recent hit that the bond market has been taking, according to one bank loan professional.

"If bond deals continue to price wider and get downsized, it will have an effect on the bank market," he said.

"We're still going to see reverse flexes and deals done at ridiculous levels for refinancings where people don't want to lose the asset. But, the stuff that could be incrementally leveraged or is more speculative for the market, those will be less likely to get done," he said.

In other news, Metro-Goldwyn-Mayer Inc.'s $1.75 billion credit facility closed Friday, according to a syndicate source. Banc of America Securities LLC and J.P. Morgan Securities Inc. acted as co-lead arrangers and joint book managers. Fleet Securities, Inc. acted as arranger.

The loan consists of a $600 million five-year revolver with an interest rate of Libor plus 275 basis points, a $300 million term A with an interest rate of Libor plus 275 basis points and an $850 million term B with an interest rate of Libor plus 300 basis points.

Originally, the size of the loan was planned to be $1.5 billion. On Wednesday the company announced that the term B was increased to $850 million from $600 million due to strong market demand resulting in oversubscription.

"MGM is in the strongest financial position it has ever been in its 78-year history," said Alex Yemenidjian, chairman and chief executive officer, in a news release earlier in the week announcing the upsizing. Even though we have no immediate need for cash, this increased access to low-cost capital gives us more flexibility and approximately $1 billion of available capacity to pursue acquisition opportunities."

Metro-Goldwyn-Mayer is a Santa Monica, Calif. developer, producer and distributor of films and television shows

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