Rhodes sweetens deal with spread boosts, OIDs; Quality Home Brands reworks term loans; Targa trades up

By Sara Rosenberg

New York, Oct. 31 - Rhodes Homes made a number of changes to its credit facility Monday, including increasing pricing on both term loan tranches, while at the same time opting to offer the paper at a discount.

Also, in primary doings, Quality Home Brands tweaked size and pricing on both its term loan tranches.

And, in the secondary, Targa Resources Inc.'s recently allocated term loan B headed higher by about an eighth to three eighths of a point during its second day of trading on market technicals.

Rhodes Homes made a round of modifications to its credit facility in order to make it a juicier investment for market players, such as flexing pricing higher on both term loans, adding soft call protection to the first-lien term loan and adding an original issue discount to both term loans.

The $450 million five-year first-lien term loan B (Ba3/B+) is now priced with an interest rate of Libor plus 325 basis points, compared to original price talk at launch of Libor plus 275 basis points, according to a market source.

Furthermore, soft call protection was added to the first-lien term loan B of 102 in year one, 101 in year two and par thereafter, the source said.

As for the $150 million 51/2-year second-lien term loan (B1/B-), pricing was raised pretty significantly, going to Libor plus 750 basis points from original price talk at launch of Libor plus 600 basis points, the source continued.

Call protection on the second-lien term loan remained unchanged from that which it was launched with - 103 in year one, 102 in year two, 101 in year three and par thereafter.

In addition, both the first- and the second-lien term loans are now being offered to investors at an original issue discount of 99.5, as opposed to par where they were originally being offered.

There were some other changes as well to the credit agreement, such as speculative building of homes is limited to 5% of total value and acquisitions of un-entitled land not adjacent to entitled or developed land is capped at $25 million per year, the source said.

Also, the company will have to maintain a minimum of $25 million cash at all times, and a $50 million interest reserve has been established (which would cover one year's interest expense), a fund manager added.

With all these changes in place, the "book is building quickly now and should be done in a couple days," the source concluded.

Some market players think that the Rhodes credit facility was having some trouble getting off the ground with the original structure for a variety of potential reasons, including data emerging that some hot housing markets were starting to cool, the general malaise in the high-yield market spilling into loans and buyers wanting risks more constrained.

"Those factors, I think, must have played into market hesitation in an environment where a lot of deals are not breaking strong," one source added.

Credit Suisse First Boston is the lead arranger on the Rhodes' $600 million credit facility.

Proceeds will be used by the Las Vegas-based homebuilder to refinance existing debt, fund future development and land acquisition costs and fund an approximately $100 million dividend.

Quality Home Brands

Quality Home Brands reworked size and pricing of its first- and second-lien term loans, with the first lien undergoing an upsizing and reverse flex and the second lien undergoing a downsizing and flex up.

The six-year first-lien term loan is now sized at $133 million, compared to an original size at launch of $125 million, and pricing was cut to Libor plus 275 basis points, compared to initial price talk of Libor plus 300 basis points, according to a market source.

Meanwhile, the seven-year second-lien term loan is now sized at $30 million, compared to an original size at launch of $40 million, and pricing was increased to Libor plus 700 basis points, compared to initial price talk of Libor plus 650 basis points, the source said.

Quality Home Brands $20 million five-year revolver remained unchanged in terms of size and pricing - which is set at Libor plus 300 basis points.

With these modifications, the overall size of the credit facility dropped to $183 million from $185 million, with the $2 million decrease being a result of lower refinancing needs, the source explained.

Recommitments to the newly tweaked deal are due from investors by noon ET Tuesday.

Bear Stearns is the lead bank on the deal.

Proceeds will be used by the newly formed lighting company to fund Murray Feiss Import LLC's acquisition of Sea Gull Holdings.

Murray Feiss, a Quad-C portfolio company, is a Bronx, N.Y., supplier of indoor and outdoor residential lighting products.

Capella shifts funds

Capella Healthcare Inc. moved $10 million out of its second-lien term loan and into its first-lien term loan and reverse flexed pricing on the upsized first-lien term loan late last week, according to a market source.

The first-lien term loan B (B3/B) is now sized at $107 million, up from $97 million, and pricing was cut to Libor plus 300 basis points from original price talk of Libor plus 325 basis points, the source said.

The second-lien term loan C (Caa2/CCC+) is now sized at $48 million, down from $58 million, and pricing firmed up at Libor plus 600 basis points, which is where the deal was launched, the source added.

The $195 million credit facility also contains a $40 million revolver (B3/B).

Citigroup and Bank of America are the lead banks on the deal, with Citi the left lead.

Proceeds will be used to help fund the acquisition of some hospitals from HCA Inc.

Brentwood, Tenn.-based Capella was formed earlier this year by GTCR Golder Rauner LLC, Daniel Slipkovich and Thomas Anderson for the purpose of acquiring and building acute care hospitals within the United States. Slipkovich is chief executive officer of the company, and Anderson is president.

Targa stronger

Targa Resources' $1.25 billion seven-year term loan B was higher in Monday's market, with levels moving to par ¾ bid, 101¼ offered, according to one trader. A second trader had the paper up on the day, but not by as much, as he quoted the bank debt more around the par ½ bid, par ¾ offered context.

"I think it is cheap relative to comps, EPCO, Magellan, etc.," the first trader said in explanation of why the paper was on the rise. It "has [a] better collateral package, first lien versus unsecured/mlp," the trader added.

The term loan B had freed for trading early in the day Friday, breaking at par ¼ bid, par ½ offered, settling down to the par bid, par ¼ offered context by midday, and then moving back up to par 3/8 bid, par 5/8 offered by close, according to various traders.

The term loan B is priced with an interest rate of Libor plus 225 basis points and has a step down to Libor plus 200 basis points upon the sale of the company's North Texas asset. During syndication, the tranche had been upsized from $1.15 billion after company downsized its bond offering by $100 million to $250 million. In addition, pricing on the B loan came down from original price talk of Libor plus 250 basis points on strong investor demand.

Targa is an independent midstream energy company formed in 2003 by management and the global private equity firm Warburg Pincus.

San Juan Cable closes

MidOcean Partners and Crestview Partners completed its acquisition of the San Juan, Puerto Rico, area cable operations jointly owned by Adelphia Communications Corp. and ML Media Partners LP, according to a news release.

To help fund the transaction, San Juan Cable got a new $400 million credit facility consisting of a $225 million first-lien term loan (B1/B+) with an interest rate of Libor plus 200 basis points, a $125 million second-lien term loan (B3/B-) with an interest rate of Libor plus 550 basis points and a $50 million revolver (B1/B+).

During syndication, the first-lien term loan was upsized from $190 million and pricing was reverse flexed from original price talk at launch of Libor plus 225 basis points, and the second-lien term loan was reduced from a size of $160 million.

Citigroup and JPMorgan acted as the lead banks on the deal.

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