Cengage Learning continues decline in secondary; market awaits handful of LBO/merger deals

By Sara Rosenberg

New York, July 5 - Cengage Learning Acquisitions Inc.'s term loans continued to move lower in trading on Friday, increasing the losses that begin a day after the company's Chapter 11 filing.

Over in the primary market, investors are looking ahead at the couple of buyout/merger deals that are slated to launch, including True Religion Apparel Inc., Springer Science + Business Media, Gardner Denver Inc. and Media General Inc.

Cengage retreats again

Cengage's term loans headed lower in the secondary market on Friday as investors continue to react to news surrounding the company's recent bankruptcy filing, according to a trader.

The extended term loan, non-extended term loan and incremental term loan were all quoted at 68 bid, 70 offered, down from 70½ bid, 72½ offered on Wednesday.

By comparison, on Tuesday, when the Chapter 11 news came out, the loans were all quoted at 73½ bid, 76½ offered, and on Monday the debt was seen at 74 bid, 75 offered.

Cengage restructuring

With the bankruptcy filing, Cengage said that it entered into a restructuring support agreement with an ad hoc committee of first-lien lenders who hold about $2 billion of its first-lien debt.

The restructuring is expected to eliminate more than $4 billion in debt from the balance sheet and position the company to implement management's strategic business plan.

The company also revealed that it is not planning on getting a debtor-in-possession financing facility as it maintains substantial cash balances and expects to generate positive cash flow. Secured lenders have agreed to let the company use its use cash flow from operations to continue to fund the business and meet obligations in the normal course during the restructuring process.

Cengage noteholders blame LBO

Cengage's second-lien noteholders said in a filing with the bankruptcy court on Wednesday that some causes of action may be present in the restructuring case, including that the company was likely made insolvent by the massive amount of debt it took on in connection with its leveraged buyout by Apax Partners LP in 2007.

Then, according to the noteholders, Apax bought a large amount of Cengage's debt through open-market transactions in the months prior to the Chapter 11 filing.

The noteholders are claiming that Apax's conduct may support the equitable disallowance of its claims or the equitable subordination of its claims to the claims of other creditors, which could result in substantial additional values for creditors.

Cengage is a Stamford, Conn.-based educational content, software and services company.

True Religion on deck

Moving to the primary, the near-term calendar is filled with a few new transactions, including True Religion Apparel's $535 million senior secured credit facility that will launch with a bank meeting on Tuesday.

The facility consists of a $50 million asset-based revolver, a $375 million seven-year first-lien covenant-light term loan and a $110 million eight-year second-lien covenant-light term loan.

Deutsche Bank Securities Inc., Jefferies Finance LLC, UBS Securities LLC and Macquarie Capital (USA) Inc. are leading the deal that will be used with up to $175 million in equity and cash on hand to fund the company's buyout by TowerBrook Capital Partners LP for $32 per share in cash in a transaction valued at about $835 million.

Closing is expected in the third quarter, subject to shareholder approval, regulatory approvals and other customary conditions.

True Religion is a Vernon, Calif.-based jeans and jeans-related sportswear company.

Springer coming soon

Another deal that will launch with a meeting on Tuesday is Springer Science + Business Media's $1,553,000,000 seven-year first-lien covenant-light term loan.

The company's credit facility also includes a €150 million revolver and a €565 million seven-year first-lien covenant-light term loan.

Credit Suisse Securities (USA) LLC, Goldman Sachs Bank USA, J.P. Morgan Securities LLC, Barclays, Nomura and UBS Securities LLC are leading the deal for which commitments will be due on July 23.

Proceeds, along with €640 million of subordinated debt that has been privately placed with Goldman Sachs Mezzanine fund, will fund the buyout of the Berlin-based STM publisher by BC Partners from EQT Partners and the Government of Singapore Investment Corp. for around €3.3 billion.

Senior leverage is about 5 times, and total leverage is just shy of 7 times.

Gardner readies deal

Gardner Denver will also hold a meeting in New York on Tuesday to launch its $2,725,000,000 senior secured credit facility that includes a $400 million five-year revolver, a $1.8 billion seven-year term loan and a $525 million seven-year euro term loan.

A bank meeting for European investors will take place in London on Thursday.

UBS Securities LLC, Barclays, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Mizuho Corporate Bank Ltd., RBC Capital Markets, Macquarie Capital, HSBC Securities (USA) Inc., KKR Capital Markets and Sumitomo Mitsui Banking are leading the deal that will be used with $675 million of senior notes to fund the company's buyout by Kohlberg Kravis Roberts & Co. LP for $76 per share in cash. The transaction is valued at about $3.9 billion, including the assumption of debt.

Closing is expected in the third quarter, subject to shareholder approval, regulatory approvals and other customary conditions.

Gardner Denver is a Wayne, Pa.-based manufacturer of industrial compressors, blowers, pumps, loading arms and fuel systems.

Media General plans loan

Media General will hold a bank meeting on Wednesday to launch a $900 million credit facility that is being led by RBC Capital Markets, J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The deal is being done in connection with the company's all-stock merger with New Young Broadcasting Holding Co. Inc., a Nashville, Tenn.-based media company.

Proceeds will be used to refinance around $765 million of debt at Media General and Young and pay a $50 million cash contribution to Media General's qualified pension plan.

Closing is expected late in the third or early in the fourth quarter, subject to Media General shareholder approval, Federal Communications Commission approval, clearance under the Hart-Scott-Rodino antitrust act and customary third-party consents.

Media General is a Richmond, Va.-based provider of news, information and entertainment.

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