Talen prices $600 million loan; Forterra tightens talk; loan funds see $160 million inflows

By Paul A. Harris

Portland, Ore., Oct. 18 – Bank loans were better bid in a one-way market on Tuesday, a trader said.

Cash continues to flow into the dedicated bank loan funds, which saw $160 million of inflows on Monday, the trader added.

Investors are taking a view that, notwithstanding double-digit year-to-date returns on high-yield bonds, bank loans, in the present environment, are the place to be if you’re looking for debt securities.

In the primary market Talen Energy Corp. priced its $600 million seven-year senior secured covenant-light term loan B (Ba1/BB) with a Libor plus 500 basis points spread at 98.5.

And Forterra Finance LLC tightened spread talk and increased the discount on its upsized $1.05 billion seven-year covenant-light first-lien term loan (B1/B+).

Loans still the place to be

The autumn bank loan market continues to be a story of repricings, according to a leveraged loan portfolio manager.

Nearly the entire universe of bank loans seems to be 100½ bid, 101 offered, the source added.

“When you see a loan trading there you know it’s a good candidate for repricing.”

You might reflexively sell in such circumstances, the investor reasoned.

However, if you elect to do so you will be sitting on a pile of cash. And reinvesting that cash, given the current dynamics, is apt to be a challenge.

Rather than sell it is rational to bid 101, the manager asserted.

That way you collect your consent fee, remain invested. And even though the paper dips on repricing news, it’s a good bet that you will ride it back up, given the present level of demand.

What’s driving that demand is the solid relative value of bank loans, far outperforming other classes of debt securities except for high-yield bonds.

However, many investors are wary of junk, the manager said.

Double B rated paper – having priced on the tights in recent months – will not fare well in a rising rate environment.

And triple C paper is a acquired taste, especially in a sluggish economy where there is uncertainty about how higher rates might impact the smooth performance of the debt refinancing conveyor.

Hence the single B junk bond trade is becoming crowded, the manager said.

Therefore, people continue to allocate cash to floating-rate bank loans, which will hold in much better than double B high-yield bonds when rates start to rise and which are handily outperforming nearly every fixed-income asset class, the manager said.

Talen prices term loan

Talen Energy priced its $600 million seven-year senior secured covenant-light term loan B (Ba1/BB) with a Libor plus 500 bps spread at 98.5.

The spread was widened from 475 bps.

As before, the spread will float atop a 1% Libor floor.

The original issue discount increased to 98.5 from 99.

The 101 soft call protection was extended to 12 months from six months.

The amortization rate of 1% per annum remains unchanged.

There is a ticking fee of half the spread starting 30 days post-allocation and the full spread starting 60 days post-allocation.

Included in the loan is an excess cash flow sweep of 50% at 3.25 times senior secured leverage, stepping down to 25% at less than 3.25 times senior secured leverage and 0% at less than 2.25 times senior secured leverage.

Goldman Sachs Bank USA, RBC Capital Markets LLC, Barclays, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley Senior Funding Inc. and MUFG are the lead arrangers and bookrunners on the debt.

Proceeds will be used to help fund the acquisition of the company by Riverstone Holdings LLC in a transaction that has a total enterprise value of roughly $5.2 billion.

Elsewhere, FLY Leasing priced $410 million term loan extension at par, according to a market source.

The deal, which extends the maturity of the loan to February 2022 from August 2019, was trading at 100 1/8 bid, 100½ offered late Tuesday, the source added.

Pricing on the extended term loan is unchanged from current pricing of Libor plus 275 bps with a 0.75% Libor floor, the source said.

The extended term loan will have 101 soft call protection for six months.

Lenders are being offered a 25-bps fee for the extension, the source added.

RBC Capital Markets was the lead on the deal.

Applied Systems trades higher

An Applied Systems Inc. $150 million add-on to the Libor plus 325 bps first-lien term loan (B1) priced at 99.75 and traded to par bid, 100½ offered on the break.

The discount came 25 bps rich to talk of 99.5.

Both the add-on term loan and the existing term loan will get 101 soft call protection reset for six months, the source said.

Jefferies Finance LLC is the lead bank on the deal. Credit Suisse Securities (USA) LLC will remain the administrative agent.

Proceeds will be used to fund a distribution of capital to shareholders.

Eovoqua sets talk

Evoqua Water Technologies (EWT Holdings III Corp.) talked a $150 million fungible tack-on to its Libor plus 375 bps first-lien term loan due Jan. 15, 2021 (B2/B) at 99.25.

Commitments are due on Oct. 25.

The spread is identical that of the existing loan, and, as with the existing loan, it floats atop a 1% Libor floor.

Existing lenders will be paid a 25-bps consent fee for consenting to the credit amendment.

The 101 soft call resets for six months.

Credit Suisse Securities (USA) LLC is the lead.

The Warrendale, Pa.-based provider of equipment and services for water treatment plans to use the proceeds to refinance draws upon its revolver, to refinance its existing second-lien debt and for general corporate purposes.

Forterra tightens talk

Forterra tightened spread talk and increased the discount on its upsized $1.05 billion seven-year covenant-light first-lien term loan (B1/B+).

Spread talk tightened to Libor plus 350 bps from 400 bps.

The new 99.5 OID is 50 cents rich to earlier talk of 99.

The deal is upsized from $1 billion.

The 1% Libor floor and 101 soft call protection for six months are unchanged.

Commitments were due on Tuesday.

Credit Suisse Securities (USA) LLC is the lead bank on the deal.

Proceeds will be used to refinance existing debt.

ConvaTec finalizes terms

ConvaTec Healthcare Inc. set final terms on its $1.37 billion equivalent of five-year term loan A tranches (Ba3/BB).

The $770 million and €546 million tranches are priced at 225 bps spreads to Libor and Euribor, respectively.

Neither tranche has a Libor/Euribor floor.

Both are priced at 99.5

Closing is set for late October to early November.

The company’s $2 billion-equivalent credit facility also includes a $430 million Libor plus 250 bps seven-year senior secured term loan B and a $200 million-equivalent revolver.

Goldman Sachs Bank USA, Bank of America Merrill Lynch, UBS Investment Bank, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Morgan Stanley Senior Funding Inc. are the leads.

Proceeds will be used to help refinance existing debt.

Varsity Brands price talk

Varsity Brands talked a $95 million add-on first lien term loan with a 400 basis points spread to Libor at 99.5.

Commitments are due Oct. 25.

The spread floats atop a 1% Libor floor.

The deal comes with six months of soft call protection at 101 and features 1% annual amortization.

Goldman Sachs is the left bookrunner. Barclays and Jefferies are the joint bookrunner.

The company will privately place $95 million of add-on second lien term loan paper.

The Memphis, Tenn.-based provider of school sports, cheerleading and achievement-related products plans to use the proceeds, along with balance sheet cash, to fund a distribution to existing equity holders.

MGM Growth repricing

MGM Growth Properties Operating Partnership LP set talk in a repricing of $1.841 billion of its 6.5-year covenant-light term loan B paper with a 250 bps spread to Libor at par, a trader said.

BofA Merrill Lynch is the lead on the deal.

As reported, the loan came last April, sized at $1.85 billion with a Libor plus 325 bps spread at 99.75, after having been talked as high as 425 bps to 450 bps.

MGM Growth Properties is a Las Vegas-based real estate investment trust engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts.

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