Federal-Mogul bank debt rises on rumors of company emergence from Chapter 11

By Sara Rosenberg

New York, April 9 - The big news in the secondary bank loan market, according to a trader, was the rise in price of Federal-Mogul Corp. paper on Tuesday to the high 60s from the previous level in the 50s. The move up was in response to new reports that asbestos plaintiffs and bondholders have reached an agreement with the company, which would allow Federal Mogul to emerge from Chapter 11 bankruptcy protection. One report said the agreement would give claimants 50.1% of the company's new equity and insurance proceeds and that holders of the company's $2 billion face value of bonds would get the rest of the company's equity.

The trader explained that the bank paper went up after these reports because, "there's a conclusion that there's a structure out there and there's good value to the company" given they are a global supplier of automotive components. Other market rumors, according to the trader, named Carl Icahn as being involved in Federal-Mogul's bankruptcy emergence. Some speculate that it is the well-known corporate raider who is buying up bonds, the trader added.

However in response to the various news reports, Federal-Mogul said in a statement: "Federal-Mogul has not agreed to the terms of any plan of reorganization that would permit it to emerge from Chapter 11."

"We continue to work diligently with all parties involved in our restructuring, and we remain optimistic that with our leadership a consensual resolution can and will be reached," said Frank Macher, chairman and chief executive officer, in the news release.

"The Board of Directors and the management team remain in control of the company," the press release concluded.

In primary news, Team Health Inc. held its bank meeting on Tuesday for a new $300 million credit facility (Ba3/B+). Fleet National Bank and Bank of America Securities are joint lead arrangers and joint bookrunners for the loan. Fleet National Bank will also act as administrative agent while Bank of America Securities is taking on the role of syndication agent.

The credit facility consists of a $75 million revolver, a $75 million term loan A and a $150 million term loan B. The revolver matures in five years, has an interest rate of Libor plus 275 basis points and a commitment fee of 50 basis points. The term loan A matures in five years and has an interest rate of Libor plus 275 basis points, while the term loan B matures in six-and-a-half-years and has an interest rate of Libor plus 325 basis points. The loan is to be secured by basically all stock and assets of Team Health and its subsidiaries. Proceeds from the new credit facility will be used to refinance existing bank debt, to fund the acquisition of Spectrum Healthcare Resources and for general corporate purposes.

Members of the syndicate and the company were unavailable for comment on whether the bank meeting was successful.

According to one market source, Team Health may have a hard time closing on its new credit facility. "My guess is that it will be a tough deal because of how much pro rata they have to sell," he explained.

In other news, Corrections Corp. of America announced it has received a commitment for a new $695 million senior secured credit facility from Lehman Commercial Paper as administrative agent and Lehman Brothers as sole lead arranger, exclusive advisor and sole book running manager, according to a company press release.

Proceeds from the bank loan will be combined with the proceeds from a proposed $150 million senior note offering to refinance the company's existing credit facility, which currently has $789.7 million in outstanding borrowings and matures on Dec. 31, 2002, the release said.

The refinancing of the credit facility and the note sale are expected to be completed by May 15, according to the release. Further details of the credit facility were not immediately available.

The company announcement of the proposed new credit facility and proposed senior note offering came quickly after Moody's Investors Service released a statement saying that the company's ratings are on review for possible upgrade.

"A key factor in Moody's review will be the refinancing of much of its debt, which matures on December 31, 2002," the Moody's release said. "Assuming the firm refinances this debt, extends its maturities, and the loan covenants remain substantially the same, Moody's anticipates a one-notch upgrade of all its ratings."

Ratings under review include the B3 senior unsecured debt rating, the B2 secured bank facility rating and the Caa2 preferred stock rating.

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