Flippers push down Neiman Marcus; Charter trades down; quiet market focuses on Thursday meetings

By Paul A. Harris

St. Louis, Oct. 5 - The Rosh Hashana holidays rendered the "sideways-moving" loan market quiet during the mid-week session, a bank loan source said.

Meanwhile, with the junk market weaker by another point, one syndicate official suggested that the chop from high yield has begun to bleed over into the loan market to a certain extent.

And Neiman Marcus paper eased, with one trader suggesting that the softness likely betrays the hands of "flippers."

One loan that continued to move Wednesday in the secondary market was The Neiman Marcus Group Inc.'s $1.975 billion 71/2-year term loan B (B1/B+/B).

Earlier in the week, on Monday, Prospect News heard that the Dallas-based high-end specialty retailer's paper had broke strongly to 101 bid, 101.50 offered, before settling in at 100.75 bid, 101 offered.

Tuesday a source spotted the paper 100.75 bid, 100.875, while a trader later spotted it at 100.625 bid, and commented that it seemed that a lot of people were selling.

That slide continued Wednesday, with another trader spotting the loan as low as 100.50 bid, and said that it appeared to have support at 100.50 bid, 100.75 offered.

"It keeps sliding as flippers keep pushing it lower," the trader commented Wednesday.

Meanwhile in the junk bond market a trader spotted Neiman Marcus's new senior notes and subordinated notes, both maturing in 2015, down a point.

Also down Wednesday, the trader said, was the loan paper of Charter Communications.

The trader commented that the bonds were off two to three points and the bank debt was off about an eighth of a point.

Junk and second-lien paper

Color continued to be heard Wednesday that a proliferation of second-lien paper in the bank loan market is possibly a manifestation of junk bond deals that would face difficulty in the high-yield market's present sell-off.

One bank loan syndicate official said that the instability in high yield is now putting pressure on the second-lien market.

"People are waiting for the high yield to stabilize," the source said.

"The bigger [high-yield] deals are coming restructured, wide of talk and with funded bridge loans."

A trader more or less agreed but added: "We still have pretty broad-based buy-side interest out there" and added, by way of example, that buyers had been appearing for the second lien paper of burger chain Denny's Corp., which the trader spotted "in the upper 102s to around 103."

School Specialty's fate

Elsewhere Wednesday one source speculated about the fortunes of School Specialty Inc.'s $650 million senior secured credit facility (B1/B+) in light of the fact that the company saw a junk bond deal that it had priced just days earlier terminated by the underwriters.

On Monday the company the company announced that Banc of America Securities, JP Morgan and Deutsche Bank Securities, managers of its $350 million issue of senior notes - and also the leads on the bank deal - terminated the issue.

The eight-year senior notes (B3/CCC+) priced at par on Friday, Sept. 23, to yield 10%.

The three institutions terminated the deal because, in their view, certain conditions to School Specialty's obligations under the senior notes purchase agreement have not been and cannot be satisfied, according to Monday's press release.

School Specialty believes that this action relates to disappointing results in August and September and lowered earnings expectations for fiscal 2006.

The bank loan and the terminated bond deal came into the market to help finance the LBO of the company by Bain Capital and Thomas H. Lee.

One high yield syndicate official not on the deal, but claiming that School Specialty is symptomatic of how chop in the junk market carries over into the bank loan market, said that rumors were circulating that the entire LBO is in trouble.

However a source close to the deal told Prospect News on Wednesday that it may be too early to start playing "Taps," for the bank deal.

"Technically no one has tried to actually cancel the financing commitment," the source said.

"It's the sponsors' decision. And with the bad news the sponsors are going to want to talk about the price and cut a better deal.

That's what this is about."

A full roster of Thursday meetings

Meanwhile another market source told Prospect News that at present there is a lot of focus on the new issue calendar, with "seven or eight primary bank meetings on Thursday alone."

The Prospect Bank Loan Daily lists the following deals slated to take shape in Thursday bank meetings:

* Roundy's Supermarkets Inc.'s $825 million senior credit facility via Bear Stearns and Goldman Sachs;

* Shea Capital's $750 million loan via JPMorgan;

* Alpha Natural Resources Inc.'s $500 million facility via Citigroup and UBS;

* MarkWest Energy Partners, LP's $500 million loan via RBC Capital Markets;

* BCBG Max Azria Group's $300 million credit facility led by Citigroup;

* Doane Pet Care Co.'s $205 million loan via Lehman Brothers; and

* Scorpion Drilling's $200 million second-lien term loan arranged by Morgan Stanley.

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