Xerox weakening continues; Terex B lower while term C struggles; US Airways changes DIP

By Sara Rosenberg

New York, Sept. 25 - Xerox Corp.'s bank debt dropped again on Wednesday as the market continued to react to news of a new accounting probe. Meanwhile, Terex Corp. is not only having trouble with quotes on its existing term loan B but syndication of the term C is struggling as well, sources said. And, U.S. Airways modified its debtor-in-possession facility in hopes that investors will commit to the deal.

Xerox Corp.'s revolver was quoted in the lower 70's, according to a trader. "The loan moved around a lot. It's probably at 73/75 now." On Tuesday, the revolver was quoted with a bid of 75 and an offer of 76.

"The term loans have either stayed flat or are down about a point," the trader said. Previously, the term loan A was quoted with a bid of 83¼ and an offer of 84¼ and the term loan B was quoted with a bid around 95 and an offer around 96

"There hasn't really been any activity [in Xerox]," the trader continued. "But, it feels a lot weaker."

The Stamford, Conn. document company announced on Monday night that the U.S. attorney's office is conducting an investigation into past accounting issues, which had been previously reviewed by the Securities and Exchange Commission. Xerox had settled with the SEC by paying a $10 million fine, restating its financial results for the years 1997 through 2000 and adjusted its previously announced 2001 results.

Terex Corp.'s $210 million term loan C (Ba3/BB-) due in 2009 "is not going very well at all", a sell-side source said. "People are very frustrated with the company. There are a lot of big fund managers that own the paper and they don't like the add-on.

"Existing paper has traded off significantly to be quoted in the low 90's, possibly 92ish. No one wants to sell it down there because it's a little painful," he said. Before market pressure was put on the term loan B, the paper was being quoted around 99. Since the term C hit the primary, the loan edged downwards.

"[Plus], the deal is way below the market. It's a BB- credit at Libor plus 250 basis points," the sell-side source continued.

"If it came at 200, existing lenders would be happier but it wouldn't get syndicated. Right now they need to go back and figure out what the best strategy is to syndicate the tranche and keep existing lenders happy," he concluded.

Early in the summer, the Westport, Conn. maker of capital equipment closed on a $675 million credit facility, which was used to help finance the acquisition of Demag Mobile Cranes GmbH & Co. KG and to refinance Terex debt. At that time, the company priced its term loan B with an interest rate of Libor plus 200 basis points.

Following the emergence of the term C, one fund manager told Prospect News that Terex would not be looked at since the investment community was "very upset about it". The fund manager went on to predict that the new tranche would have a "negative effect on the existing loan," saying "Why would you want to buy paper at par for 200 if you can get it at 250?"

Proceeds from the term loan C are being used to refinance approximately $175 million of debt of newly acquired Genie Holdings Inc.

Credit Suisse First Boston and Salomon Smith Barney are the lead banks on the deal.

U.S. Airways' $500 million debtor-in-possession financing facility underwent some changes recently in order to gain more investor interest. The interest rates on both the $250 million revolver and the $250 million term loan were flexed up by 50 basis points to Libor plus 400 basis points, according to market sources. Furthermore, "they widened the fees by three points," a market participant said. "I think it was a point before."

"People expected to be compensated a little bit more for it," a sell-side source explained.

Before these modifications took effect, talk around the market was that the loan had been struggling and an increase in interest rates was expected. "I don't think they're getting much interest in it," a fund manager previously told Prospect News. "There are some quirky things about the deal. Collateral is a little weak. They're giving some airplanes but in this economy there are a lot of parked airplanes." He added that interest rates on the loan would probably be flexed up in order for the deal to get done.

Credit Suisse First Boston is the lead bank on the Arlington, Va. airline's facility, which expires on the earlier of Sept. 30, 2003 or completion of reorganization.

While specific details on Burger King Corp.'s upcoming debt financing have yet to emerge, there has been some number talk floating around the market to see where interest lies for a potential arranger and title agent, a sell-side source told Prospect News. The bank debt is currently being discussed in the zip code of $800 to $900 million, while the bond offering could potentially be for $500 million, depending on the purchase price, the source said.

JPMorgan and Salomon Smith Barney are said to be the lead banks on both the bank debt and the bonds. The deal itself is expected to hit the market some time in October.

Proceeds are being use help fund the leveraged buyout of Burger King by equity sponsors Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners from Diageo plc.

Burger King is a Miami, Fla. hamburger fast-food chain.

Coming up in the primary on Thursday, Integrated Defense Technologies Inc. is scheduled to hold a bank meeting regarding on add-on term loan, according to market sources. CIBC World Markets is the lead bank on the deal.

Proceeds will be used to help fund the acquisition of a BAE Systems' division for $146 million. The transaction is expected to close during the first half of the fourth quarter 2002.

The size of the add-on has not yet been finalized, according to a company spokesman, but it is estimated at around $125 million. "It depends on cash on hand at the time of closing, "the spokesman added.

The interest rate on the add-on is expected to be similar to the rate on the existing term loans, if not slightly lower, according to the spokesman. Currently the company's term loans have an interest rate that can range from Libor plus 200 to 275 basis points, according to a filing with the Securities and Exchange Commission.

"Theoretically it should go fine," a market participant said. "[Integrated Defense] operates in a fairly attractive industry right now so it should be able to build momentum."

Integrated Defense is a Huntsville, Ala. developer and provider of advanced electronics and technology products to the defense and intelligence industries.

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