Gray Television, GenCorp hold bank meetings; Tyco, Xerox strengthen in secondary

By Sara Rosenberg

New York, Sept. 9 - The week started off fairly active in leveraged loans, despite expectations of a quiet market due to the fast approaching one-year anniversary of Sept. 11, with the launch of some new deals in the primary market, including Gray Television Inc. and GenCorp Inc.

Meanwhile, in secondary activity, distressed names took the spotlight with Xerox Corp. and Tyco International Ltd. labeled as "the biggest movers today" by sources, in an otherwise quiet Monday market.

Gray Television Inc. held a bank meeting Monday afternoon regarding its new $450 million senior secured credit facility (Ba3/B+), according to a syndicate source. Wachovia is listed on the left as the lead bank on the deal.

The loan consists of a $375 million eight-year term loan B with an interest rate of Libor plus 325 basis points and a $75 million seven-year revolver with an interest rate of Libor plus 300 basis points, the syndicate source said.

Basically all assets will be used to secure the Atlanta, Ga. communications company's loan.

"It's a solid deal," a fund manager said. Asked to expand on the term "solid", the fund manager responded with "it's not fabulous but it's not bad. [Gray] had a little too much leverage (with total leverage of about 6.5 times), but it's a good strategic move for them."

The "strategic move" referred to above is the company's acquisition of 15 stations from Stations Holding Co., the parent company of Benedek Broadcasting. Proceeds from the credit facility are expected to help fund the acquisition.

"Gray should be a pretty easy deal," a sell-side source said. "It's a basic business. Fundamentally, it's a deal that should work. I think it's in the zip code of what should clear, but we'll see since the market is a bit finicky."

As additional backing for his theory that Gray's new credit facility should go smoothly, the sell-side source mentioned the company's recent $100 million add-on bond deal that took place last week. "The bond deal went well," he said, adding that since the high yield offering was well accepted it stands to reason that the bank loan market may find the company's debt appealing as well.

On Sept. 5, Gray priced a $100 million add-on to its 9¼% senior subordinated notes due Dec. 15, 2011 (B3/B+) at par. Wachovia Securities, Inc., Banc of America Securities and Deutsche Bank Securities Inc. were joint bookrunners. Allen & Co. was co-manager. Proceeds from the bond deal will be used to repay borrowings under the company's senior secured credit facility and for general corporate purposes.

The fund manager was not alone in pointing out Gray's leverage situation. Moody's Investors Service stated that following the acquisition Gray's ratings will continue to be constrained by the company's high leverage and thin cash flow coverage of interest and capital expenditures. Leverage for the combined company is expected to be below 6 times. Interest coverage after capital expenditures is likely to be thin given the larger digital expenditures the company needs to make over the next three years. Pro forma for the combined company and as of June 30, 2002, leverage as measured by total Debt/EBITDA is high at 6.6 times (7.1 times including preferred stock) and is expected to decrease by year-end. (EBITDA-CapEx, including digital)/Interest is thin at 1.8 times, Moody's said.

The rating agency also expressed concern over integration risks associated with the acquisition.

Standard & Poor's rating, while reflecting concern over the size of the acquisition and how it would ultimately be financed, reiterated the idea of the acquisition being good strategy. "The acquisitions will improve Gray's network-affiliation, geographic, and cash flow diversity," said S&P analyst Steve Wilkinson in the rating release. "The transactions will maintain the high quality of the company's TV portfolio with the leading news and overall audience ratings in 80% of its markets, which generally results in a higher share of market revenues, national spot advertising, and political spending."

In other primary news, GenCorp Inc. held a bank meeting for a new $125 million 51/2-year term loan B (BB+) that it priced with an interest rate of Libor plus 300 basis points, according to a syndicate source. Deutsche Bank and ABN Amro are the lead banks on the deal.

Proceeds will be used to purchase General Dynamics' space propulsion business and to pay down outstanding revolver debt.

GenCorp is a Rancho Cordova, Calif. manufacturing company that operates through automotive, aerospace and defense and fine chemicals segments.

Xerox Corp.'s revolver was quoted in the mid-70's, according to a trader who deals with distressed names. The Stamford Conn. document company's debt has seen an improvement of approximately three points over the last two weeks, a second trader pointed out.

"There has been strengthening in the overall distressed market," the second trader said. "As for Xerox, the term loan C is about to be paid off. I think it matures on the 15th or 16th of this month. The bank debt has been moving up on the expectation that the company will repay the term loan, thereby decreasing debt."

The distressed trader, however, cited positive company news as the impetus behind the rise.

During the annual shareholders meeting, Anne Mulcahy, chairman and chief executive officer, stated that Xerox is well positioned to achieve full-year profitability in 2002, according to a news release. Over the past year, the company reduced its annualized cost base by $1.3 billion and posted a $1.9 billion cash balance at the end of the second quarter. Furthermore, shareholders approved increasing the authorized a 700 million-share increase in the authorized common stock, providing future flexibility for the company.

Tyco International Ltd.'s revolver was quoted in the mid-90's on Monday, the distressed trader said.

Once again, the second trader attributed the improved performance to the upcoming expiration date of the facility. The Pembroke, Bermuda manufacturing and services company's revolver matures in February 2003, the trader said. "The revolver has been moving up as we approach the maturity. It's a yield to maturity play at this time," the trader explained.

Otherwise, it is expected to be "a fairly quiet week [in the secondary] with the anniversary and everything," a different trader told Prospect News with some sadness in his voice. "There's a couple of bank meetings this week to keep people busy."

Coming up on Tuesday, Nellson Neutraceutical Inc. will launch a new $145 million secured credit facility, according to a syndicate source. UBS Warburg is sole lead arranger and sole bookrunner for the deal.

The loan consists of a $15 million five-year revolver with an interest rate of Libor plus 425 basis points and a $130 million seven-year term loan B with an interest rate of Libor plus 425 basis points, according to the syndicate source.

Proceeds from the loan will be used to effect the company's leverage buyout by Fremont Partners.

Nellson is an Irwindale, Calif. formulator and manufacturer of functional bars and powders.

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