Loans ease, high beta names hit hardest as hedge funds lower risk; funds add $112 million

By Paul A. Harris

St. Louis, May 20 - Amid intense volatility rocking the global capital markets bank loans were lower on Thursday, sources said.

The LCDX 14 bank loan index was at 94 3/8 bid, 94 7/8 offered early Thursday afternoon, down 7/8 to a point on the day, according to a trader working for an East Coast bank loan mutual fund.

The index's 94 3/8 bid translated to a Libor spread of approximately 400 bps, the source added.

"The hedge funds are unwinding risk," the trader said.

"It's not as bad as it was in 2007 and 2008, but you can't dismiss it," the source remarked, adding that the sell-off in bank loans, as well as in other asset classes, is clearly related to the financial crisis in Europe.

However the cash flows of bank loan mutual funds returned to positive during the week to Wednesday, sources said.

The funds saw $112 million of inflows, according to AMG Data Services, market sources reported.

The cash influx follows the previous week's $44.1 million outflow, which was the first outflow that the bank loan funds had sustained since the week ending Nov. 24, 2009, a market source said.

Unwinding risk

As investors unwind risk, high beta loans continue to underperform, the bank loan trader said on Thursday.

The B-2 tranche of First Data Corp.'s term loan dropped by a point during the session to 83 bid, 84 offered, the trader said, adding that it was at 90 bid on April 26.

In the same time-frame the TXU term loan dropped by 5 points, the trader said.

Double B rated issues, meanwhile, are also under pressure, although less so, the source added.

Baldor Electric Co.'s term loan, at 99½ bid, was down about ¼ point on the day. That loan was at par ¾ bid on April 26.

Georgia Pacific Corp.'s loan was at 97 1/8 bid, 97 3/8 offered. It has dropped by about 2 points since April 26, when it was at 99½ bid.

Part of that price drop is related to Georgia Pacific's recent bid for Pactiv Corp., the trader said.

SkillSoft prices, trades higher

In the bank loan primary market SkillSoft plc priced its $325 million Libor plus 475 bps term loan at 99.00.

The reoffer price came on top of price talk that had tightened from the original 98.50 talk.

The loan becomes callable at 102 after one year.

Morgan Stanley and Barclays were the lead banks.

The $365 million senior secured credit facility (Ba3/BB-) also includes a $40 million revolver.

Proceeds will be used to help fund the buyout of the company by an investor group, which is comprised of Berkshire Partners LLC, Advent International Corp. and Bain Capital Partners LLC. The group is purchasing SkillSoft for $11.25 in cash per share. The fully diluted equity value of the transaction is $1.2 billion.

Other financing will come from equity. Also, the company has received a commitment for a $240 million senior unsecured bridge loan.

The SkillSoft loan was trading at 99¼ bid, 99¾ offered Thursday afternoon, after trading to 99 bid, 99½ offered on the break, according to a market source.

RCN Cable boosts pricing

Elsewhere RCN Cable boosted pricing on its $560 million six-year term loan B (B1/B/) to a 400 bps Libor spread from the previous spread of 375 bps.

Meanwhile the Libor floor increased to 2% from 1.75%.

The pricing modifications came in order to entice those investors who are on the sidelines due to capital markets volatility over the past 10 days, the source said, adding that the increased pricing should also provide a healthy oversubscription, which will help the deal trade well in the secondary market.

The order book is fully subscribed, the source said.

The term loan B is being offered at an original issue discount of 99, the source said.

SunTrust, GE Capital and Société Générale are the bookrunners on the deal, which is scheduled to launch with a bank meeting on Friday. SunTrust is the left lead and administrative agent.

Proceeds will be used to help fund the buyout of the company by ABRY Partners in a transaction valued at $1.2 billion, including the assumption of debt. RCN stockholders will be receiving $15 per share.

As part of the buyout financing, RCN's fiber business is also getting a credit facility that is being led by the same banks as the RCN Cable facility.

The Metro Fiber $265 million credit facility consists of a $240 million six-year term loan talked at Libor plus 450 bps with a 2% Libor floor and an original issue discount of 981/2, and a $25 million five-year revolver.

The Metro Fiber term loan was 2.5 times oversubscribed, the market source said.

RCN is a Herndon, Va.-based broadband services provider.

Willbros downsizes term loan

Meanwhile, Willbros Group Inc. downsized its term loan by $250 million, reducing the size to $50 million from $300 million.

The Houston-based energy industries services contractor elected to go instead with a $250 million offering of second-lien bonds.

Pricing on the downsized term loan remains unchanged at Libor plus 450 basis points, with a discount range of 98 to 99.

The $225 million deal also features a $175 million three-year revolver with price talk of Libor plus 425 bps, according to a market source.

Crédit Agricole Corporate and Investment Bank and UBS Securities are the lead banks.

Buying primary, selling secondary

In spite of the turmoil that presently besets the financial markets, the bank loan primary continues to see tight pricings, a trader commented.

Triumph Group Inc. tightened pricing on its $300 million senior secured term loan B (Baa3) to Libor plus 300 bps from Libor plus 325 bps, and tightened the original issue discount to 99.50 from 99, the source said.

Hillman Group Inc. reduced the OID on its $290 million six-year term loan B to 99.50 from 99, the trader added.

"They're tightening OID or margin, but lately tightening both," the trader said.

Tight pricings notwithstanding, new deals are holding in well in the secondary market, although not quite as well as they had been holding in prior to the recent dramatic upswing in volatility.

Right now people are buying the calendar and selling the secondary, and the reason is the CLO bid, the trader said.

Another reason is that recently priced loans are structured with considerably lower leverage than loans that were priced two to three years ago, the source added.

Regal Cinemas closes

Regal Entertainment Group announced that its Regal Cinemas Corp. subsidiary completed a $1.335 billion amended and restated senior credit facility (Ba3/BB-) on May 19.

The financing includes a $1.25 billion 61/2-year term loan due Nov. 19, 2016 priced at Libor plus 350 bps, with a step up to Libor plus 375 bps when leverage is over 3 times, and an $85 million five-year revolver due May 19, 2015 with the same pricing.

Credit Suisse AG, Cayman Islands Branch is the administrative agent. Credit Suisse Securities (USA) LLC and Barclays Capital are joint lead arrangers and joint bookrunners, and Banc of America Securities LLC and Deutsche Bank Securities Inc. were also joint bookrunners.

Proceeds from the term loan were used to refinance the old term loan, which had $1.2621 billion outstanding.

The revolver was undrawn at closing.

Covenants include that the sum of funded debt (net of unencumbered cash) plus eight times lease expense be no more than 6 times consolidated EBITDAR; that the maximum ratio of funded debt (net of unencumbered cash) to consolidated EBITDA be 4.00 to 1.0; that consolidated EBITDAR be at least 1.5 times interest expense plus lease expense; and that capital expenditures not exceed 35% of consolidated EBITDA for the prior fiscal year plus a one-year carry-forward for unused amounts from the prior fiscal year.

Del Taco completed

Also closing, Del Taco Holdings, Inc. said it completed a recapitalization including a $160 million term loan and a $39 million revolving line of credit.

The company, formerly known as Sagittarius Brands, Inc., refinanced its existing debt, sold its Captain D's subsidiary to Sun Capital Partners, Inc. and received an new cash equity infusion led by Goldman Sachs Mezzanine Partners, with existing investors Charlesbank Capital Partners and Leonard Green & Partners also contributing "significant new capital."

Wells Fargo and GE Capital led the new credit facility.

The term loan was priced at Libor plus 550 bps with a 2% Libor floor and an original issue discount of OID 971/2. The tranche had call protection of 102 and then 101.

"These transactions result in an improved capital structure for Del Taco, and provide us increased flexibility to support our growth through a sole focus on the Del Taco brand. This, combined with a significantly lower level of debt and cash interest requirements, allows Del Taco to improve cash flows and invest in the business," said Steven Brake, senior vice president and chief financial officer, in a news release.

Del Taco is a Lake Forest, Calif., operator and franchiser of restaurants.

Medical Properties wraps loan

Meanwhile, Medical Properties Trust Inc. said it completed its $450 million credit facility (Ba1/BB) on May 17.

The loan is made up of a $300 million three-year revolver due May 17, 2013 and a $150 million six-year term loan due May 17, 2016.

The term loan is priced at Libor plus 350 bps with a 1.5% Libor floor and was sold at an original issue discount of 99.

Medical Properties will pay a rate of Libor plus 300 to 375 basis points on the revolver, depending on its overall level of debt. At a total debt to total assets ratio of 40% and 50%, the spread will be 325 bps. the initial rate is Libor plus 300 bps.

The revolver has a $50 million accordion feature that can be exercised for the next 18 months.

J.P. Morgan Securities Inc., KeyBank NA and RBC Capital Markets Corp. were joint lead arrangers and joint bookrunners.

Proceeds will be used for general corporate purposes. At closing approximately $150 million was outstanding, with the funds being used to repay the company's existing $220 million facility.

"When combined with the proceeds of our recent equity offerings, we have more than $525 million available for acquisitions," said Edward K. Aldag, Jr., chairman, president and chief executive officer, said in a news release.

Medical Properties Trust is a Birmingham, Ala., self-advised real estate investment trust focused on net-leased health care facilities.

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