CompuCom breaks; LCDX rises as Fed cuts discount rate; Realogy stronger; Collective funds B loan

By Sara Rosenberg

New York, Aug. 17 - CompuCom Systems Inc.'s term loan B allocated and freed up for trading during Friday's market hours, with levels quoted near the original issue discount, LCDX was stronger on news that the Federal Reserve Board reduced the discount rate, and Realogy Corp. traded better.

In other news, Collective Brands Inc. funded its new term loan B, although syndication on the loan has not yet taken place and it is unclear whether it will be brought to market in the future.

CompuCom Systems' $190 million term loan B (Ba2/BB) broke for trading on Friday afternoon, with levels quoted at 96 bid, 97 offered, according to a market source.

The "well oversubscribed" term loan B is priced at Libor plus 350 basis points, with 101 call protection in years one and two, and was sold to investors with an original issue discount of 96, the source said.

During syndication, pricing on the term loan B was flexed up from original talk in the Libor plus 300 bps area and the call protection and discount were added.

Bear Stearns is the lead bank on the deal.

Proceeds will be used to help fund the acquisition of the company by Court Square Capital Partners from Platinum Equity.

The transaction is valued at about $628 million and is subject to regulatory approvals as well as satisfaction of other customary closing conditions.

Other buyout financing is expected to come from $210 million of senior subordinated notes, $50 million borrowed under the company's existing receivable securitization facility and equity of about 30%.

In late July, the bond deal was postponed to September business from August business because of market conditions, but the term loan B was left in syndication.

At that time, it was said that basically all the bond postponement meant for the loan was that the company will have more time for the loan syndication process, because now it's looking at a September close as opposed to an August close.

In connection with the buyout, CompuCom intends to tender for all of its outstanding 12% senior notes due 2014.

And, CHR Intermediate Holding Corp., another subsidiary of CompuCom's parent company CHR Holding Corp., plans to tender for all of its outstanding senior floating-rate toggle notes due 2013.

Leverage through the secured debt will be around 2.7 times, and total leverage will be around 5.0 times.

CompuCom is a Dallas-based provider of technology services that help clients through the requisition, procurement, deployment, management and retirement lifecycle of their IT assets.

LCDX heads higher

LCDX was noticeably stronger on Friday spurred on by the Federal Reserve Board's announcement of a 50 bps reduction in the discount rate it charges banks for short-term loans to 5¾%, according to a trader.

In addition to the spread reduction, the Federal Reserve also changed its usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower.

These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially and are designed to provide depositories with greater assurance about the cost and availability of funding.

Also on Friday, the Federal Open Market Committee said that it is monitoring deterioration of conditions in the financial markets and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions.

"Morning had a nice little adrenaline jolt with all the Fed action so things felt better, but nobody was really doing anything [in cash]," the trader said.

"They're giving the banks more liquidity. They can borrow from the Fed with any security as collateral. Let's see if the banks actually use the discount window.

"It definitely helps [banks] be less capital constrained. But does it open CLO markets? Do the things necessary to get the market open again for the calendar coming? I don't think so, but it made people feel more positive this morning," the trader continued.

LCDX ended the day around 95 1/8 bid, 95 3/8 offered, pretty much its high of the session, compared with Thursday's closing levels of around 94¼ bid, 94 5/8 offered, the trader said.

"It was around 94 to 94¼ at the open and then it jumped up to 95 to 95 3/8 when they did the Fed announcement. It just continued to climb from there," the trader remarked.

"Cash market sentiment was positive but I do believe levels were pretty much unchanged because of the lack of volume.

"Equities closed up quite nicely too," the trader added.

At the close, Nasdaq was up 53.96 points, or 2.2%, Down Jones Industrial Average was up 233.30 points, or 1.82%, S&P 500 was up 34.67 points, or 2.46%, and NYSE was up 227.89 points, or 2.51%.

Realogy trades up

Realogy's term loan moved higher on Friday helped by the Fed announcements as well, according to a trader.

The term loan ended the day at 90 bid, 92 offered, up from previous levels of 88¾ bid, 90¾ offered, the trader said.

On Thursday, the Parsippany, N.J.-based real estate franchisor saw its term loan slide from 91½ bid, 93½ offered after Countrywide Financial Corp. revealed that it drew down $11.48 billion under its credit facilities so as to supplement its funding liquidity position.

Countrywide, a Calabasas, Calif., diversified financial services provider, drew $2.64 billion under its 364-day credit facility with JPMorgan that matures on May 7, 2008, $6.44 billion under its five-year credit facility with JPMorgan due May 10, 2011; $660 million under its 364-day credit facility with Barclays due Nov. 16, 2007; $1.54 billion under its five-year credit facility with Barclays due Nov. 17, 2011; $60 million under its 364-day credit facility with William Street due May 8, 2008 and $140 million under its five-year credit facility with William Street due May 10, 2011.

Collective Brands funds

Collective Brands Inc. funded its $725 million seven-year term loan B (B1/BB-) on Friday that is priced at Libor plus 275 bps, according to an 8-K filed with the Securities and Exchange Commission.

The term loan B was funded by the lead banks, Citigroup and JPMorgan, but has not yet been syndicated.

It is still to be determined whether the banks will just hold the paper, sell some of it off informally or hold a formal retail syndication launch at a later time, according to a market source.

Term loan B financial covenants include a maximum total leverage ratio of 4.7 to 1.0 for the fiscal quarters ending on or about Oct. 31, 2007, Jan. 31, 2008, April 30, 2008, July 31, 2008, Oct. 31, 2008 and Jan. 31, 2009; 4.2 to 1.0 for the fiscal quarters ending on or about April 30, 2009, July 31, 2009, Oct. 31, 2009 and Jan. 31, 2010 and 4.0 to 1.0 for the fiscal quarters ending on or about April 30, 2010 and each fiscal quarter after that.

Proceeds from the term loan B were used to help fund Payless ShoeSource Inc.'s acquisition of the Stride Rite Corp. for $20.50 per share, totaling about $800 million, plus the assumption of Stride Rite debt.

Other acquisition financing came from around $175 million in cash on hand.

The company also closed on a $150 million revolver add-on that brought the total revolver size to $350 million.

Pricing on the revolver can range from Libor plus 87.5 bps to Libor plus 150 bps, based on average utilization.

The revolver has a maximum fixed charge coverage ratio of 1.0 to 1.0.

Wells Fargo Retail Finance and Citigroup acted as joint lead arrangers and joint bookrunners on the revolver.

Concurrent with the closing of the acquisition, Payless renamed the combined footwear, accessories and lifestyle brand company Collective Brands, Inc., which, as a holding company, will operate three standalone business units: Payless, Stride Rite and Collective Licensing International.

Collective Brands and Payless are based in Topeka, Kan., Stride Rite is based in Lexington, Mass., and Collective Licensing is based in Denver.

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