24 Hour Fitness considers spread increase; Calpine gains on debt reduction; Visteon up on Ford agreement

By Sara Rosenberg

New York, May 25 - The syndicate on 24 Hour Fitness Worldwide Inc. is considering a potential flex up in pricing on the company's in-market term loan B as investors aren't too thrilled about the essentially 100 basis point spread cut they would inherit with this new deal.

Meanwhile, various Calpine Corp. bank debt - including that of Calpine Generating Co. LLC (CalGen) - was stronger Wednesday as the company announced plans to step up its debt reduction plans. And, Visteon Corp.'s bank debt rose as the company announced an agreement with Ford Motor Co. that provides for significant structural changes to its North American manufacturing operations.

24 Hour Fitness is talking about flexing up pricing on its $600 million seven-year term loan B to either Libor plus 275 basis points or even Libor plus 300 basis points from original price talk of Libor plus 250 basis points, according to a buyside source.

However, at this point, the syndicate is just talking to accounts about the possibility of higher pricing - no official change has been made as of yet, the source added.

The deal has been met with some resistance because investors are grappling with what they consider to be a significant reduction in spread being that under the company's existing credit agreement, which will be cancelled in connection with completion of the new deal, term loan B players receive an interest rate of Libor plus 350 basis points on their investment.

From the sellside standpoint, however, the cheaper rate is somewhat warranted because Forstmann Little & Co. - which is buying 24 Hour Fitness - is putting in two thirds of the capital needed to complete the LBO deal. Forstmann plans on financing the approximately $1.6 billion transaction with more than $900 million from its equity and subordinated debt funds.

24 Hour Fitness' $700 million credit facility (B2/B) also contains a $100 million six-year revolver talked at Libor plus 250 basis points.

The commitment deadline is set for this Thursday.

JPMorgan and Merrill Lynch are joint lead arrangers on the deal, with JPMorgan on the left.

The leveraged buyout, which is expected to close in June, is subject to regulatory approval. It is not subject to financing.

24 Hour Fitness is a San Ramon, Calif., fitness center company.

Calpine up on debt reduction

Calpine's bank debt was stronger pretty much across the board as the company revealed that it is accelerating its debt paydown strategy by targeting a reduction of more than $3 billion by the end of 2005 as opposed to by the end of 2006 as was previously planned.

The CalGen first-lien bank debt was quoted at par bid, 101 offered, with bids seen as high as par ½ during market hours, as compared to Tuesday when the offer side was right around par, according to a trader.

The CalGen second-lien bank debt was quoted at 94¾ bid, 95½ offered Wednesday, compared to previous closing levels of 93 bid, 95 offered, another trader said.

Lastly, the Calpine Corp. second-lien bank debt was quoted closing out the day at 73½ bid, 75½ offered by one trader and 74 bid, 74½ offered by a second trader, as compared to Tuesday's closing levels of 71½ bid, 72½ offered.

On Wednesday, San Jose, Calif.-based energy company Calpine said that it's aiming to sell certain power and gas assets to reduce debt, lower annual interest cost and increase cash flow. In addition to previously announced potential asset sales, the company is targeting the sale of up to eight plants.

Furthermore, the company is looking to decrease operating and maintenance costs and lower fuel costs to improve the operating performance of power plants, significantly boosting operating cash flow and liquidity.

"Calpine has set an aggressive and timely program to strengthen our financial and competitive position," said Peter Cartwright, chairman, president and chief executive officer, in the company news release. "To operate effectively in a business environment that has changed dramatically over the last few years, we are reviewing all options to provide near-term results, while continuing to focus on long-term value. We have already recognized several attractive opportunities, which we expect will improve our operating cash flow.

"We are refocusing and streamlining our business to take advantage of market opportunities as industry and economic fundamentals continue to improve in several of our key power regions. By taking these decisive actions, we're positioning Calpine to best capture the strong cash and earnings potential of our efficient, gas-fired and renewable, geothermal power fleet. The program we're presenting today is in its early stages. It will serve as a blueprint for a new and more powerful Calpine," Cartwright continued.

"Our number one financial priority is de-levering the balance sheet to bring it in line with the current and future power markets and the related spark spread-generating capability of our modern fleet. This program is the first step toward achieving our long-term target of total debt equal to six times EBITDA, as adjusted. With the new financial focus and power initiative outlined today, we expect to significantly strengthen our balance sheet, lower our annual interest payments and improve our debt coverage ratios," added chief financial officer Bob Kelly, in the release.

Visteon up on Ford deal

Visteon's delayed-draw term loan was stronger by about a point on the day as the company announced plans to transfer 24 plants to Ford in an attempt to streamline the company,

The bank debt was seen closing out the session at 96 bid, 97 offered, compared to prior levels of 95 bid, 96 offered, according to a trader.

In addition to the asset transfers, the Visteon plan also calls for the termination of the current leasing arrangements for about 17,400 Ford-UAW employees, relief of Visteon's remaining liability, including about $1.5 billion of previously deferred gains, related to Ford-UAW post-retirement health care and life insurance benefit obligations and reimbursement by Ford of up to $550 million of further restructuring actions.

Also, Ford would provide Visteon with a $250 million secured loan to refinance public notes due Aug. 1 (to be repaid at closing of the transaction) and Visteon will issue to Ford warrants to purchase 25 million shares of stock at an exercise price of $6.90 per share.

The transaction is expected to result in a net gain in the range of about $450 million to $650 million depending upon the actual amount of assets transferred.

The non-binding memorandum of understanding is subject to certain customary conditions, regulatory approvals and the ratification of the affected Ford-UAW members assigned to Visteon. Visteon and Ford expect to sign a definitive agreement on or before Aug. 1 and close the transaction by the end of the third quarter.

"This is a milestone agreement which, upon completion, will create a more competitive business structure for Visteon in the United States and remove a number of structural barriers to the company's long-term sustainable success," said Mike Johnston, chairman-elect and chief executive officer, in a company news release. "Visteon will have a more competitive North American structure, a more balanced global customer portfolio and a healthy regional mix. We will be able to accelerate our focus on products most valued by our customers and be well-positioned for growth."

Visteon is a Van Buren Township, Mich.-based supplier of automotive systems, modules and components to global vehicle manufacturers and the automotive aftermarket.

Butler allocations next week

Butler Animal Health Supply LLC is hoping to allocate its new $200 million credit facility some time next week now that the structure of the deal has firmed up with lower pricing and a minor shift in funds, according to a market source.

Late last week, the syndicate reverse flexed pricing on both the first-lien and the second-lien term loans, while adding step downs to both tranches as well and shifting $5 million of funds from the second into the first.

The now $145 million first-lien term loan (B2/B), upsized from $140 million, is priced with an interest rate of Libor plus 275 basis points and contains a step down to Libor plus 250 basis points at total leverage of 31/2x, the source said. The tranche was originally launched with price talk of Libor plus 300 basis points.

The $25 million second-lien term loan (Caa1/CCC+), downsized from $30 million, is priced with an interest rate of Libor plus 600 basis points and contains a step down to Libor plus 575 basis points at total leverage of 31/2x, the source continued. The tranche was originally launched with price talk of Libor plus 625 basis points.

Butler Animal's $30 million revolver (B2/B) was left unchanged in terms of size and spread, with the tranche priced at Libor plus 300 basis points, the source added.

Both term loans are being offered to investors at par, and the upfront fee on the revolver is 75 basis points for a $10 million commitment.

Bear Stearns is sole lead arranger and administrative agent on the deal, and Wells Fargo is the syndication agent.

Proceeds will be used to help fund the merger of The Butler Co. and Burns Veterinary Supply Inc. As part of the transaction, Heritage Partners Inc., the current owners of Butler, has agreed to sell the company to Oak Hill Capital Partners II LP. Burns Veterinary Supply is currently a wholly owned subsidiary of the Darby Group Cos. Inc. The new combined entity, Butler Animal Health Supply, will then be equally owned by Oak Hill and Darby.

The transaction is subject to normal regulatory approvals and is expected to close this summer.

Butler Animal, a distributor of veterinary supplies, will be based in Dublin, Ohio.

PennEngineering closes

PEM Holding Co., an affiliate of Tinicum Capital Partners II LP, completed its acquisition of PennEngineering from Penn Engineering & Manufacturing Corp. on Wednesday, according to a company news release.

To help fund the LBO, PennEngineering got a new $240 million credit facility consisting of a $155 million six-year first-lien term B (B2/B) with an interest rate of Libor plus 250 basis points, a $60 million seven-year second-lien term loan (B3/CCC+) with an interest rate of Libor plus 600 basis points and a $25 million five-year revolver (upsized from $20 million during syndication) with an interest rate of Libor plus 250 basis points and a 50 basis point commitment fee.

Pricing on the first-lien term loan B can step down to Libor plus 225 basis points under certain conditions - a provision that was added during syndication on strong demand.

The second-lien term loan contains call protection of 102 in year one and 101 in year two.

Credit Suisse First Boston and PNC Bank acted as joint lead arrangers on the deal, with CSFB the left lead.

PennEngineering is a Danboro, Pa., provider of value-added solutions to computer, electronics, telecommunications and automotive OEMs.

Insurance Auto Auctions closes

Kelso & Co. completed its acquisition of Insurance Auto Auctions Inc. for about $400 million, according to a company news release.

To help fund the LBO, Insurance Auto got a new $165 million credit facility (B2/B) consisting of a $115 million term loan B with an interest rate of Libor plus 275 basis points and a step down to Libor plus 250 basis points if leverage falls below 33/4x, and a $50 million revolver with an interest rate of Libor plus 275 basis points.

Originally, the term loan B was launched with price talk of Libor plus 300 basis points but was reverse flexed with the addition of the step down during syndication on strong demand.

Bear Stearns and Deutsche Bank acted as the lead banks on the deal.

Insurance Auto is a Westchester, Ill., provider of automotive total loss and specialty salvage services.

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