UPC gets enough orders for upsize, waiting on company decision; Masonite could resurface on larger bid

By Sara Rosenberg and Paul A. Harris

New York, Feb. 18 - UPC Financing Partnership already has more than enough commitments and recommitments to upsize its term loan H to its full $1.6 billion capacity, but a final decision on the size has not yet been made as the company is still going over what it wants to do. Meanwhile, expectation is that Masonite International Corp. will be reviving its recently cancelled LBO financing package, although not necessarily with the same structure, now that Kohlberg Kravis Roberts & Co. has upped its bid for the company's stock.

"The book is extremely oversubscribed. [It's] bigger than prior, because some guys were still doing work and other guys are now being taken out of term loan E paper, and gave us bigger commitments," a market source said of the UPC deal. "My gut tells me the company takes full advantage and takes the term loans to the max."

Prior to the modifications to the term loan H there had been about $2.5 billion in the book.

On Thursday, the company reworked its seven-year term loan H, giving it the ability to upsize from $600 million to $1.6 billion - split between a maximum $1.1 billion U.S. dollar tranche and a $500 million U.S. dollar equivalent euro tranche that will be marketed to U.S. investors.

Additional proceeds raised from the potential upsizing of the term loan H will be used to repay a majority of the company's outstanding term loan E debt, which carries an interest rate of Libor plus 300 basis points and matures in 2009.

Furthermore, pricing on the term loan H was reverse flexed to Libor plus 275 basis points (rate locked in for six months) with a step down to Libor plus 250 basis points when leverage falls below 4x. Initially the tranche was launched with pricing of Libor plus 300 basis points with a step down to Libor plus 275 basis points when leverage falls below 4x.

The syndicate also removed the soft call protection of 101 for year one from the term loan H credit agreement.

Lastly, the permitted acquisition basket is being eliminated from the credit agreement, but senior leverage pro forma for acquisitions must be less than the prevailing covenant or 4x, the source said. Leverage needs to be inside of 4x by March 2006.

The company will also cancel €167 million from its existing revolving credit facility and put a new €500 million undrawn revolver in place.

Commitments were due by noon on Friday. The term loan H was offered to investors at par.

UPC Financing is a subsidiary of Denver-based broadband network business UnitedGlobalCom Inc.

UnitedGlobalCom's European broadband subsidiary, UPC Distribution Holdings BV, is also working a new deal, as it is in-market with a new €850 million term loan G with an interest rate of Libor plus 250 basis points. The euro tranche does not contain a call protection provision but is being offered with upfront fees of 75 basis points for commitments of up to $35 million, 100 basis points for commitments of $36 million to $50 million in size, 125 basis points for commitments of $51 million to $70 million in size and 150 basis points for any commitments larger than $70 million.

Proceeds from the two term loans - excluding the additional term loan H debt being contemplated - will be used to refinance the company's existing term loan B and the existing term loan C, which carry an interest rate of Libor plus 550 basis points.

The euro term loan G was launched in January to new and existing banks. However, rollover commitments from lenders who hold positions in the company's euro-denominated term loan B that is being refinanced was expected to, and in fact did, account for basically all of the oversubscribed deal - which has about $1.5 billion in commitments in the book.

Bank of America, Royal Bank of Scotland and ABN Amro are the lead banks on both term loans.

UPC's $525 million term loan F that was recently obtained via TD Securities Inc. and BNP Paribas will remain in place and keep its current pricing of Libor plus 350 basis points, for now. However, after June, the pricing can step down to Libor plus 300 basis points if leverage gets below 4x.

Masonite may re-emerge

Kohlberg Kravis Roberts & Co. has increased its bid for Masonite, leaving some to think that the recently cancelled credit facility and bond deals - although possibly in a revised form - may eventually resurface, according to a market source.

"No information has been provided at this time to the market on potential financing," the source added.

Masonite was expected to launch a $1.525 billion credit facility (BB-) consisting of a $350 million revolver and a $1.175 billion term loan B this past week via Bank of Nova Scotia and Deutsche Bank as co-lead arrangers, Deutsche and UBS Securities as co-syndication agents, and SunTrust and Bank of Montreal as agents.

The company was also expected to launch $825 million of high-yield bonds (B-) this month in two-tranches - a $300 million tranche of eight-year senior unsecured floating-rate notes and a $525 million tranche of 10-year senior subordinated notes - via Deutsche Bank Securities, UBS Investment Bank and Bank of Nova Scotia.

However, early in the week of Feb. 14, the decision was made to cancel the bank meeting and the bond offering because shareholders were expected to turn down the KKR LBO proposal at Friday's shareholder meeting since they felt it undervalued the company.

In response to this opposition, KKR announced late Thursday night that it increased its offer to C$42.25 per share cash from C$40.20 per share cash, and, in light of the change, Masonite rescheduled its shareholders meeting to March 31 from Feb. 18.

Late Friday Prospect News learned that Greystone, one of Masonite's biggest shareholders with about 8% of the stock, has specified that it will support the new bid.

A second market source explained that it has become customary on today's LBO landscape for shareholders to withhold approval until they are certain they have extracted the optimal terms, regardless of the advice of corporate administrators and company directors.

"There are so many hedge funds and other savvy investors that people are really pushing back on terms and deals," said the source. "It happens all of the time. Coors-Molson was an example where you had a couple of big hedge funds digging in their heels, holding out for more money.

"The premiums in a lot of these deals, these days, are not that big. So some people are holding out for dividends and premiums. Everyone is being a little more savvy about it. And they are using their leverage a little more."

Masonite's board unanimously recommends that shareholders vote in favor of the revised transaction. The company's special committee of directors was advised by Merrill Lynch.

Masonite International is a Mississauga, Ont.-based building products company.

Buckeye contemplating options

Buckeye Technologies Inc.'s $85 million term loan B add-on and repricing proposal are still in-market despite news that the company's consent solicitation to allow for the repurchase of notes flopped, according to a market source. The add-on term loan B proceeds were expected to be used to help fund the note redemption.

"The company is still deciding what to do," the source explained.

On Jan. 27, Buckeye had launched a solicitation of consents from holders of its outstanding $200 million 8½% senior notes due 2013, asking to amend some provisions of the 2013 notes indenture to permit the company to redeem $100 million of its 9¼% senior subordinated notes due Sept. 15, 2008.

One day after Buckeye had launched the consent solicitation, a bank lender conference call was held, asking investors to participate in the $85 million term loan B add-on and to reprice its entire term loan B tranche (of which about $111 million was existing debt) at Libor plus 200 basis points from Libor plus 250 basis points.

However, on Thursday, the company announced that the consent solicitation, which expired on Wednesday, was unsuccessful and would not be extended as it had been on two prior occasions.

Buckeye also announced on Thursday that it plans to call for redemption $20 million in total principal amount of its outstanding 9¼% notes on or about March 23 in accordance with their terms.

Citigroup and Bank of America are the lead banks on the bank loan deal, with Citigroup the left lead.

Buckeye Technologies is a Memphis, Tenn., manufacturer and marketer of specialty fibers and nonwoven materials

LB Pacific sees no dropout on changes

Recommitments were due on LB Pacific LP's recently modified $175 million seven-year term loan B (B1/B-) on Friday afternoon but by morning the changes were already known to be pretty much successful as "no one had dropped out yet and most people recommitted," a market source said.

The deal is expected to allocate sometime around the end of the Feb. 21 week to early in the week of Feb. 28, the source added.

LB recently upsized the term loan from $170 million -with the extra $5 million earmarked for additional liquidity - and lowered pricing on the tranche to Libor plus 275 basis points from Libor plus 300 basis points.

Furthermore, a step down to Libor plus 250 basis points was added that becomes effective when debt to distributable cash flow falls below 41/2x.

Lastly, the syndicate added 101 soft call protection for one year. However, any loan repayments made with proceeds from the sale of 25% of the company's subordinated shares and any required prepayments made with excess cash flow are excluded from the call protection.

Citigroup is the lead arranger and bookrunner on the deal, and Lehman is the syndication agent.

Proceeds from the term loan will be used to help fund LB Pacific's acquisition of The Anschutz Corp.'s 36.7% interest in Pacific Energy Partners LP for about $340 million.

More specifically, LB Pacific, a company newly formed by Lehman Brothers Merchant Banking Group, is getting a 100% ownership interest in Pacific Energy GP Inc. (the general partner), which owns a 2% general partner interest in Pacific Energy Partners and the incentive distribution rights, and 10.465 million Pacific Energy Partners subordinated units representing a 34.7% limited partner interest in Pacific Energy Partners.

About $182 million of equity will also be used to help finance the acquisition.

Pacific Energy Partners is a Long Beach, Calif., gatherer, transporter, storer and distributor of crude oil and other related products.

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