DRS term B gets over $1 billion in orders by launch; Levi's hits 1021/2, 103½ on first day of trading

By Sara Rosenberg

New York, Sept. 23 - DRS Technologies Inc.'s credit facility (Ba3/BB-) is doing exceptionally well as investors vie to get their hands on defense bank debt due in part to scarcity of paper and strength of the sector. In fact, the company revealed at its bank meeting on Tuesday that there are already over $1 billion in orders for the $362.5 million term loan B, according to a fund manager.

Meanwhile, in the secondary, Levi Strauss & Co.'s credit facility broke for trading on Tuesday morning, with the floating-rate term loan B closing the day at 102½ bid, 103½ offered.

"The company's pretty darn solid," the fund manager said regarding DRS. "They've been collecting orders since the acquisition was announced. There are a lot of guys in DRS and a lot of guys in IDT so they're probably throwing in huge orders just in the hopes of getting what they've got now back," the fund manager said.

"We're losing a lot of defense paper anyway. IDT's going away because of the acquisition. We're losing Titan Corp., which is getting bought by Lockheed Martin Corp. (for a total value, including the assumption of about $580 million of Titan debt, of approximately $2.4 billion). Alliant Techsystems has been paying down their term loan quite a bit. There's a lot of demand for that sector because of defense spending but not a lot of paper in that sector so that has kept prices inflated in the secondary," the fund manager continued.

The seven-year term loan B is talked at Libor plus 275 basis points and is being offered at par.

"I think the next step that's coming is a flex down to 250. I don't think they can get away with anything lower than that," the fund manager concluded.

The $512.5 million credit facility also contains a $150 million five-year revolver talked at Libor plus 225 basis points.

Bear Stearns and Wachovia are the lead banks on the deal.

Proceeds, combined with proceeds from a bond offering, will be used to help fund the acquisition of Integrated Defense Technologies Inc.

Under the acquisition agreement, DRS will acquire all of the outstanding stock of IDT for $17.50 per share made up of in $12.25 in cash and 0.1875 shares of DRS common stock, subject to a collar.

The cash portion of the acquisition, together with the debt of IDT to be refinanced, will aggregate approximately $437 million at closing. Total consideration for the acquisition, including an estimated $175 million of IDT's net debt to be refinanced, is approximately $550 million, representing a multiple of 1.5x the revenues and 8.5x the EBITDA expected to be contributed by IDT during DRS's next full fiscal year ending March 31, 2005.

The transaction is expected to close by the end of this year, subject to customary regulatory approvals and other closing conditions.

DRS is a Parsippany, N.J. supplier of defense electronic products and systems.

Levi's credit facility broke for trading at the high levels that were previously expected by some with the opening market on the floating-rate term loan B quoted at 102 bid, 103 offered and the paper moving up from there throughout the day until finally settling at 102½ bid, 103½ offered, according to a trader.

At one point during the day, one trader saw the bid move as high as 103 and one fund manager saw it bid even higher at 103.125.

The debt traded very actively all day, the trader added.

Last week one trader told Prospect News that he expected the institutional paper to trade as high as 102 or even 103 since it has a lot more upside than a lot of new issue names in the secondary when the relatively hefty coupon and 2% Libor floor is taken into account.

The $500 million senior secured term loan maturing in 2009 (Caa1/BB-) did end up being split between a fixed-rate and a floating-rate tranche and pricing on the floating-rate was flexed down prior to allocating. The fixed-rate portion is sized at $200 million and is priced at 10%. The floating rate portion is sized at $300 million and is priced at Libor plus 687.5 basis points, down from initial price talk of Libor plus 700 basis points, according to the fund manager.

Books on the term loan closed this past Thursday as approximately $1.5 billion in commitments flooded in for the deal as investors found it hard to pass up paper with such a high coupon, according to market sources.

The $1.15 billion credit facility also contains a $650 million asset-based revolver (BB) maturing in 2007 with an interest rate of Libor plus 275 basis points.

Bank of America is the lead bank on the deal, which will replace the San Francisco brand name clothing company's existing senior secured credit facility consisting of a $375 million revolver and $365 million term loan, as well as $110 million of debt arranged under an accounts receivables securitization.

In follow-up news, ON Semiconductor Corp. closed on a $100 million additional term loan with an interest rate of Libor plus 400 basis points and a $25 million revolver due Aug. 4, 2006. J.P. Morgan Securities Inc. acted as lead arranger for the deal.

Proceeds from the additional term loan were used to refinance approximately $100 million of the existing term loans under the company's senior secured bank facility. The Phoenix supplier of semiconductors also fully repaid and terminated its existing $62.5 million revolver, of which $37.5 million was drawn.

As a result of this transaction and the application of the net proceeds of the recent equity offering, the company's bank debt has been reduced to $369 million from $521 million.

"We continue to focus on improving our capital structure and extending our debt maturities," said Donald Colvin, senior vice president and chief financial officer, in a news release. "These transactions provide us with another opportunity to improve our financial position and we are encouraged by the positive reception these transactions have had in the market."

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