Terex term B dips as term C syndicates; Nextel rebounds from early losses

By Sara Rosenberg

New York, Sept. 19 -In secondary bank loan activity, Terex Corp.'s term loan B was quoted lower as the tranche began to feel the effect of the company's recently launched term loan C, even though the C loan has not hit the secondary yet. Nextel Communications Inc.'s bank debt fell slightly but managed to recover its losses by the end of the day.

Terex's term loan B has edged downwards in the secondary market due to investor concern over the recently launched term C (Ba3/BB-). The term B, which began trading this summer, is priced with an interest rate of Libor plus 200 basis points, while the new term C is priced with an interest rate of Libor plus 250 basis points. Given the option, investors are more likely to purchase the paper with the larger spread in order to get a better return on their investment.

Currently, the term B is being quoted around 97/98, down from a previous trading level of approximately 99, a fund manager said. "I don't think any [term B paper] has actually traded," the fund manager added. Trading activity on the tranche is expected to remain quiet until matters on the term C are resolved. "I think everyone is sitting on it waiting to see what happens on the term C, if it's oversubscribed and flexed down," a trader previously told Prospect News.

The term C, according to market sources, is still in syndication and has not yet begun to trade in the secondary. Credit Suisse First Boston and Salomon Smith Barney are the lead banks on the deal.

Proceeds from the Westport, Conn. maker of capital equipment's term loan C will be used to refinance Genie Holdings Inc.'s existing indebtedness of approximately $175 million. Furthermore, as part of the Genie acquisition, which was completed on Thursday, Terex paid $10.2 million in cash and $64.9 million in common stock.

Nextel Communications Inc. "was down and then recovered", a trader said. Following the company's announcement that executive vice president and chief operating officer, James F. Mooney, is leaving effective Sept. 30, Nextel's bank debt dropped to 86, the trader said. However the Reston, Va. communications company's loan moved back up to 88, ending the day basically unchanged from previous levels. "People just realized it probably wasn't anything material," the trader explained.

Meanwhile, syndication of Rayovac Corp.'s recently launched $675 million credit facility (Ba3) is said to be pretty much done, a buy-side source said, now that pricing on the term loan B has been flexed up by 50 basis points.

Previously it was reported that the loan was "struggling" due to the "aspect of European assets and the issue of collateral" and "light pricing". On Wednesday, both the $50 million seven-year euro term B and the $375 million seven-year term B were flexed up to Libor plus 375 basis points from Libor plus 325 basis points, according to the buy-side source. "We committed to the deal today," the buy-side source added.

The pro rate portion of the loan was reported as unchanged with the $150 million six-year revolver and the $50 million six-year euro revolver remaining at Libor plus 275 basis points. "I don't think they had a problem with the pro rata because Rayovac is known for using its revolver a lot, so investors are not just getting a commitment fee, they're getting the actual spread," the buy-side source said.

Bank of America and Citigroup are the lead banks on the Madison, Wis. battery and lighting device company's credit facility. Calls to the syndicate were not immediately returned.

Proceeds from the loan will be used to help fund the acquisition of Varta AG's consumer battery business, retire existing bank debt and provide for expanded working capital needs.

In other news, the issue of losses due to bad loans was raised by J.P. Morgan Chase & Co. in an earnings release on Tuesday - and the Wall Street Journal highlighted Thursday the strategy of making loans as an incentive to win other investment banking business from borrowers. The article reported that financial institutions - including Citigroup Inc. and Bank of America Corp. as well as J.P. Morgan - are granting companies' loans, some of which have gone bad. Genuity Inc. was cited as one of the biggest problems. As market participants across the nation were drawn to this issue, the question of whether the bank loan market may change its practices was raised.

"I don't think there will be any effect on underwriting or structuring," a fund manager said. "In the medium-term, investors in the loan market may begin to question the asset class in general." The fund manager explained that prospective investors may be deterred by the idea that their return is not the bank's focus, rather the institution's balance sheet and relationship with the borrowing company take precedence.

However, "it depends on if there are follow-up articles," the fund manager continued. "One article on J.P. Morgan won't do it."

"I think the view on it is that anyone around the market knows what's going on," a trader said. "[Financial institutions] are trying to manage their portfolio accurately. I don't think [this article] will have much of an effect. Institutional investors need to put their money to work. Bank investors have to put the company first. Hopefully the impact will be that borrowers have to pay more, but I don't think that will happen."

Following up on some credit facilities, Headwaters Inc. closed on its new $175 million credit facility (B1/B+) on Thursday, according to a syndicate source. Morgan Stanley was the lead arranger on the deal and General Electric Capital Corp. acted as administrative agent.

The loan consists of a $155 million five-year term loan B with an interest rate of Libor plus 425 basis points and a $20 million three-year revolver with an interest rate of Libor plus 425 basis points, the syndicate source said.

Originally, the loan was sized at $245 million and consisted of a $220 million five-year term loan B with an interest rate of Libor plus 375 basis points and a $25 million three-year revolver with an interest rate of Libor plus 375 basis points.

The changes to the size and pricing of the loan took place through the course of syndication. "It was always structured as a book building transaction," the syndicate source explained. The credit facility was restructured "for a different market".

Proceeds from the loan are being used to help fund acquisition of Industrial Services Group Inc., which also closed on Thursday, and for general corporate purposes. Under the terms of the acquisition agreement, the Draper, Utah alternative energy company paid $22.7 million in cash, $10 million in ISG management-financed subordinated debt and 2.1 million shares of its common stock. Furthermore, Headwaters refinanced $181 million of outstanding indebtedness of ISG with the new term loan B and with $20 million of newly issued subordinated notes via Allied Capital Corp., according to a news release.

The leveraged buyout of ConAgra Foods Inc.'s fresh beef and pork operations by Swift & Co. through sponsors Hicks, Muse, Tate and Furst was completed on Thursday, according to a news release. To help fund the transaction, Swift & Co. obtained a new $550 million secured credit facility (Ba2/BB), consisting of a $350 million revolver with an interest rate of Libor plus 325 basis points and a $200 million term loan B with an interest rate of Libor plus 325 basis points, sources previously told Prospect News.

The facility is structured as an asset-based loan with borrowings tied to 85% of eligible accounts receivable and 70% of eligible inventory.

Citibank and JPMorgan Chase were the lead banks on the deal.

News of the LBO was first released in May, at which time the transaction was expected to close in August. However, following a recall of ConAgra beef, Swift's high-yield offering was postponed, delaying both the completion of the credit facility and the acquisition. Once market conditions improved, a modified bond offering was brought back to market, putting the transaction back on track.

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