Intelsat amendment meets resistance; NCO sets talk, OID; Cash, LCDX trade lower

By Sara Rosenberg

New York, Jan. 22 - The Intelsat Ltd./PanAmSat Holding Corp. amendment has some investors unhappy as they would have preferred being repaid with the company's pending change in ownership, rather than being tied to the deal.

In other news, NCO Group Inc. came out with the original issue discount on its term loan B add-on as the deal was launched with a bank meeting during Tuesday's session.

Meanwhile, in the secondary, cash and LCDX 9 were both weaker, although they did come off their lows after a surprise rate cut by the Fed.

Intelsat/PanAmSat's proposed credit facility amendment is being met with several gripes from investors, with the biggest issue being that people want to be repaid with the change of control, a market source told Prospect News.

BC Partners is buying approximately 76% of the primary ownership of Intelsat, who merged with PanAmSat in 2006. The current shareholders of Intelsat, including funds advised by Apax Partners, Apollo Management, Madison Dearborn Partners, Permira and management, are expected to receive upon closing about $4.6 billion in cash and will continue to hold approximately 24% of the primary ownership in the company.

In connection with the buyout, Intelsat and PanAmSat are attempting to secure an amendment that would allow the credit facilities to remain in place and would give lenders a bump in pricing, an amendment fee, call protection, a new senior secured leverage ratio, a reduction in revolver sizes and a new administrative agent.

According to the market source, some investors feel like they should be able to get out of the credit facilities with the change of control because they just don't want the paper anymore, while others would rather be repaid at par rather than risk watching the paper trade down in the currently volatile secondary.

In addition, some feel that if the company did a new deal as opposed to an amendment, the pricing on the new deal would be higher than what is being offered to the existing lender group and the debt would have to be sold at some sort of original issue discount.

"Only way to resolve this is to have a new deal and see where it falls out," the source remarked.

At the close, PanAmSat's term loan B was quoted around 96 bid, 97 7/8 offered, compared with Friday's levels of 96½ bid, 98 1/8 offered, a trader said.

Under the amendment, pricing on Intelsat's and PanAmSat's secured bank debt would be increased to Libor plus 250 basis points from current pricing of Libor plus 200 bps. PanAmSat's pricing would have the ability to range anywhere from Libor plus 250 bps to 287.5 bps based on a leverage grid.

This pricing would also apply to PanAmSat's new $150 million term loan that was launched last week and is being used to redeem a $150 million issue of 6 3/8% senior notes.

The first 50.1% of lenders to approve the amendment will get paid a fee of 500 bps. The remainder will get paid a fee of 100 bps.

Other terms of the amendment include that Intelsat's term loan will be non-callable for two years, and PanAmSat's term loan will be divided into a term loan B-1 that is callable at par, a term loan B-2 that has call protection of 102 in year one and 101 in year two, and a term loan B-3 that is non-callable for one year, then at 102 in year two and 101 in year three.

Senior secured leverage ratios will be added to the covenant-light term loans, with Intelsat getting a 1.5 times test and PanAmSat getting a 4.5 times test.

Also, Intelsat's revolver will be downsized by $50 million and PanAmSat's revolver will be downsized by $75 million.

Lastly, Credit Suisse will be taking over the role of administrative agent from Citigroup.

In order to change the administrative agent, lenders are supposed to be given 20 days' notice; however, this amendment would waive that notice period - another point of contention for lenders, the source added.

A call for investors only was held on Tuesday morning to discuss the amendment details. The call was organized by Citigroup.

Intelsat is a Pembroke, Bermuda, satellite company.

NCO price talk, OID emerge

NCO Group held a bank meeting at the Four Seasons in New York at 2:30 p.m. ET on Tuesday to kick off syndication on its proposed $139 million term loan B add-on, and in connection with the launch, price talk and an original issue discount on the debt was announced, according to a market source.

Price talk on the add-on is Libor plus 400 bps, the source said - not much of a surprise given that the company said in an 8-K filing on Friday that the debt would carry a spread of at least Libor plus 400 bps.

The term loan B add-on was presented to lenders with a discount of 99, the source continued.

RBS Securities is the lead bank on the deal.

Proceeds from the add-on will be used to help fund the acquisition of Outsourcing Solutions Inc., a provider of business process outsourcing services, for about $325 million in cash.

Other acquisition financing will come from $210 million of PIK preferred and common equity issued to One Equity Partners, the principal shareholder of NCO, and certain co-investors.

The acquisition is a deleveraging event as the equity used for the transaction exceeds the incremental debt, thereby lowering total debt to pro forma EBITDA.

In connection with this transaction, pricing on the company's existing $465 million term loan B will be increased from Libor plus 300 bps to match the add-on pricing.

The company's existing senior secured credit facility will also be amended to allow for the new debt and the acquisition, to appoint RBS as administrative agent, to amend the covenants to reflect the incremental debt and to amend certain basket sizes and adjust covenant procedures for new financing.

The add-on is not being done under the accordion feature that is present in the company's existing credit facility because it only provides for up to $100 million in incremental debt and it would only allow pricing on the term loan to go up to Libor plus 350 bps, the source explained.

The accordion will be removed from the credit agreement as part of this transaction, the source added.

Consents and commitments are due on Jan. 29, with closing targeted for Jan. 31.

Lenders will be paid an amendment fee of 25 bps.

NCO is a Horsham, Pa., provider of business process outsourcing services.

Cash, LCDX soften

Switching to secondary happenings, it was a rough day of trading with cash and LCDX 9 dropping significantly early on in the session and then rebounding slightly - but not enough to regain all their losses, according to traders.

The cash market in general opened on Tuesday about a point and a half lower, traders said. Then, right after the rate cut, things were down about three-quarters of a point and by the end of the day, levels were only down by about half a point.

Meanwhile, LCDX 9 closed the day at 93.40 bid, 93.60 offered, down from Friday's levels of 94.25 bid, 94.50 offered, traders remarked. The index was seen as low as 92.30 bid early in the morning.

On Tuesday morning, the Federal Open Market Committee reduced the federal funds rate by 75 bps to 3½%.

The rate cut was a surprise because it came in between regularly scheduled meetings.

The committee said that it took this action "in view of a weakening of the economic outlook and increasing downside risks to growth.

"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.

"Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets," the committee statement added.

The stock market also ended weaker on Tuesday, with Nasdaq down 47.75 points, or 2.04%, Dow Jones Industrial Average down 127.62 points, or 1.05%, S&P 500 down 14.69 points, or 1.11%, and NYSE down 133.69 points, or 1.52%.

UAL slides despite decent numbers

Also in trading, UAL Corp.'s term loan fell off despite the release of positive earnings results as the general weakness in the secondary overpowered the earnings news, according to a trader.

The term loan was quoted at 89 bid, 90 offered, down from Friday's levels of 90 bid, 91 offered, the trader said.

For full-year 2007, UAL reported pre-tax income of $695 million. Pre-tax income excluding special items and severance was $606 million, $665 million higher than 2006.

Net income for the year was $403 million, excluding reorganization items. Excluding special and reorganization items and severance, 2007 net income was $352 million, $417 million higher than 2006.

Annual diluted earnings per share were $2.79.

The company generated $1 billion of operating income for the year, or $948 million excluding special items and severance. This is $515 million, or nearly 120%, higher than 2006.

Operating cash flow for 2007 was $2.1 billion, a 37% increase from 2006.

Full-year free cash flow increased by 23% year-over-year to $1.5 billion and to $1.7 billion after excluding the impact of certain aircraft refinancing transactions in 2007.

For the fourth quarter, the company reported an operating loss of $64 million, a pre-tax loss of $98 million and a net loss of $53 million, $8 million better than the fourth quarter of 2006.

Basic loss per share during the quarter was $0.47.

Fourth-quarter free cash flow was a negative $98 million.

The company said that its fourth-quarter results were negatively affected by the sharp rise in the price of fuel.

UAL is a Chicago-based air transportation services provider.

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