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Distressed debt: Weight Watchers B-2 term debt extends losses; co. eyes B-1 2016 maturity

Weight Watchers International covenant-lite B-2 term debt due 2020 (L+325, 0.75% LIBOR floor) is extending losses this morning, recently marked at 53.5/55.5, after coming under pressure late yesterday on the company’s fourth-quarter results, which missed Street expectations and showed declines in membership. By comparison, the paper was wrapped around 59 late yesterday following the news and was pegged in a 63/64 context ahead of the results, according to sources.

The most recent drop pushes the paper, issued in April 2013 at 98.5, to fresh lows, according to Markit.

The less-liquid B-1 term loan due 2016 (L+300) has held up better, with dealers making markets in the paper this morning at 94/96 and 95/97, which is down 1-2 points from prior to the news. Note that on yesterday’s conference call, management said it is targeting a cash balance of at least $350 million by the end of the year, which would provide it with “ample liquidity” to address the April 2016 maturity of the B-1 tranche, according to a transcript of the call provided by Bloomberg. For reference, there was about $296 million outstanding under the B-1 tranche as of Sept. 30, SEC filings show.

The company’s shares, which trade on the New York Stock Exchange under the ticker WTW, tumbled about 31% this morning on the news, to $12.12.

As reported, the company reported that fourth-quarter revenue declined 10.4% from the prior year period, to $327.8 million, and fell below the S&P Capital IQ consensus estimate of $332.7 million, as membership declined 15% in the past quarter, to 2.51 million.

Meanwhile, fourth-quarter EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) declined to $29.9 million, from $92.9 million in the year-ago period.

LTM adjusted EBITDA came in at $338.3 million, for net leverage of about 6.1x, given the $2.358 billion of debt outstanding, net of $301 million of cash. Leverage is up a full turn, from 5.1x, at the end of the third quarter, SEC filings show.

“While we still believe in our underlying strategies, I am disappointed that we are not yet where we hoped to be and our turnaround will take longer than we had anticipated,” CEO Jim Chambers warned.

Chambers also said that the company is taking more-aggressive steps with cost structure through a $100 million cost-savings initiative.

The company reported a fourth-quarter loss of $16.1 million, or $0.28 per share, versus a profit of $30.8 million, or $0.24 per share in the year-ago period.

For 2015, Weight Watchers expects earnings per share of $0.40-0.70, versus the S&P Capital IQ consensus estimate of $1.43 per share.

Weight Watchers is rated B/B1, while its term debt is rated B+/B1, with a 2 recovery rating.

Weight Watchers in April 2013 wrapped a comprehensive refinancing of its bank debt via J.P. Morgan, Bank of America Merrill Lynch, HSBC, Scotia, and U.S. Bank. J.P. Morgan is administrative agent. The transaction was comprised of a $2.1 billion, seven-year B-2 term loan; a $300 million, three-year B-1 term loan; and a $200 million, five-year revolver. The term loans are covenant-lite. – Kerry Kantin/Rachelle Kakouris

Follow Rachelle on Twitter for distressed debt news and insight.

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New LBO deals rein in leverage amid regulatory pressure

LBO leverage ratios

Regulatory pressure is curtailing how aggressively new leveraged buyouts are being structured, a fact made clear by recent credit statistics.

Since the Shared National Credit Review of last summer, the average debt multiple of new large LBOs – the most consistent sample LCD tracks when it comes to credit stats – has eased to an average of 5.6x over the past five months, from 5.8x during first three quarters of last year and a recent apex of 6.3x during the third quarter of 2014. – Steve Miller

 Follow Steve on Twitter for leveraged loan news and insight.

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Invesco prices $618M CLO via Morgan Stanley; YTD volume: $12.45B

Morgan Stanley has priced a $618 million CLO for Invesco Senior Secured Management, according to market sources.

The transaction is structured as follows:

The non-call period is 1.5 years, and the reinvestment period is 4.1 years.

Including this transaction, CLO issuance in the year to date rises to $12.45 billion from 23 transactions, according to LCD. Fourteen CLOs have priced in February for $7.3 billion. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.

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ScentAir Technologies nets buyout loan from TPG Specialty Lending

TPG Specialty Lending added a loan backing scent marketing company ScentAir Technologies to its investment portfolio late last year.

The 7.5% first-lien loan due 2019, at $15.6 million on a cost basis and at fair value, was initially acquired in December 2014, a Form 10-K for 2014 filed yesterday showed. The loan was originated in connection with a buyout by a sponsor.

There were other lenders, in addition to TPG Specialty Lending, behind the acquisition financing for ScentAir, sources said.

The ScentAir Technologies loan is held at least in part by TPG SL SPV, LLC, which is a subsidiary formed in March 2012 that has a revolving credit agreement with Natixis.

ScentAir Technologies, based in Charlotte, N.C., sells scent delivery systems to create ambient scents in business settings worldwide, including retail environments, hotels, and healthcare industries. Darien, Conn.-based Alerion Partners had been an investor in the company, according to S&P Capital IQ.

TPG Specialty Lending is a BDC that lends to middle-market companies and trades on the New York Stock Exchange under the symbol TSLX. The company targets U.S.-based middle-market companies generating annual EBITDA of $10-250 million, mainly through direct origination of senior loans, but also through mezzanine loans, bonds, and equity investments. – Abby Latour

Follow Abby on Twitter for middle market loan news and insight. 

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Valeant outlines leveraged loan amendment related to $14.5B Salix purchase

Valeant this morning launched a slate of proposed changes to its credit facility that will be used to facilitate financing of its $14.5 billion acquisition of Salix Pharmaceuticals, according to an SEC filing. The company has asked lenders to waive total leverage and interest coverage tests that govern incremental borrowings.

That request is part of a larger slate of changes, and lenders are offered a 25 bps fee to approve. As reported, Deutsche Bank, HSBC, Bank of Tokyo-Mitsubishi UFJ, DNB Capital Markets, and SunTrust Robinson Humphrey have committed to provide a $1 billion, five-year incremental A term loan, a $4.55 billion, seven-year incremental B term loan, and a $9.6 billion unsecured bridge loan to finance the transaction, according to filings.

In addition to waiving the 5.25x total leverage and 3x minimum interest coverage tests to allow solely for the incremental loans to help finance the acquisition, Valeant is seeking covenant changes through the first quarter of 2016, including a modification of the interest coverage ratio to 2.25x, allowing for the incurrence of $750 million of additional unsecured debt, waiving of the 5.25x leverage governor in connection with any incremental borrowings, and altering the consolidated EBITDA definition to allow for add-backs of restructuring charges and fees and expenses tied the Salix purchase. The amendment package would also:

  • Waive mandatory prepayments from equity issuance used in the Salix deal or 2014 excess cash flow proceeds of roughly $250 million;
  • Modify the restricted payments covenant so that refinancing of Salix’s convertible notes and settlement of related warrants won’t be deemed RPs;
  • Permit the administrative agent under the credit agreement to enter into certain intercreditor agreements;
  • Increase cash netting from $350 million to $600 million;
  • For future permitted acquisitions change the no default and pro forma compliance conditions to the incremental from “at closing” to “at signing,” and waive incremental total leverage ratio conditions so that only the senior secured leverage ratio applies.

 

Ahead of this morning’s call, Valeant’s institutional loans were pegged in a 99.5/100 context, essentially unchanged from yesterday though off from levels bracketing par prior to yesterday’s M&A announcement, sources said.

Note the existing institutional loans include 50 bps of MFN protection. As of Sept. 30, 2014, Valeant had $182.3 million outstanding under its A-1 term loan due April 2016 (L+225, no LIBOR floor), $166.3 million outstanding under its A-2 term loan due April 2016 (L+225, no LIBOR floor), roughly $1.81 billion outstanding under its A-3 term loan due October 2018 (L+225, no LIBOR floor), roughly $1.09 billion outstanding under its series D-2 B term loan due February 2019 (L+275, with a 0.75% LIBOR floor), $837.5 million outstanding under its series C-2 B term loan due December 2019 (L+275, with a 0.75% LIBOR floor), and roughly $2.54 billion under its series E-1 B term loan due August 2020 (L+275, 0.75% floor). According to the commitment letter, pricing on the new TLA is tied to a leverage-based grid from L+175-225, opening at L+225. Pricing on the new TLB, meanwhile, is outlined at L+350, with a 0.75% LIBOR floor.

Pricing on the bridge loan would open at L+575, increasing 50 bps every 90 days. Note that market conditions at the time of syndication typically dictate actual price talk. The incremental TLA would amortize at a rate of 5% in the first year, 10% in the second, and at 20% thereafter. As reported, Valeant plans to acquire all of the outstanding common stock of Salix for $158 per share in cash in a transaction valued at $14.5 billion. As a result of the need to draw-down inventories, EBITDA will be artificially low in 2014 and 2015, resulting in initial pro forma net leverage of roughly 5.6x. Valeant said it is committed to reducing its net-leverage ratio to below 4x by the second half of 2016. Valeant does not expect any change to its credit ratings as a result of the transaction.

The company is currently rated BB-/Ba3. The transaction, which is expected to close in the second quarter of 2015, is subject to customary closing conditions and regulatory approval. NYSE-listed Valeant Pharmaceuticals, which is based in Laval, Canada, makes a broad range of pharmaceutical products. Salix Pharmaceuticals is based in Raleigh, N.C and is rated B/B1. – Staff reports

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Riverbed cuts pricing on upsized leveraged loan, moves deadline to tomorrow

Credit Suisse, Citigroup, Barclays, and Morgan Stanley this morning rolled out revisions to the LBO loan for Riverbed Technologies, including cutting pricing and upsizing the term loan by $50 million, to $1.575 billion, according to sources. In addition, the commitment deadline was accelerated to noon EST tomorrow, from the close of business on Thursday.

Guidance is now L+500, with a 1% LIBOR floor and a 99.5 offer price, from original talk of L+525, with a 1% floor and a 98.5 OID, sources said. In addition, the leads added a step-down tied to first-lien leverage to L+475. As before, the seven-year loan includes six months of 101 soft call protection.

Following this morning’s flex, the loan offers a yield to maturity of about 6.23%, versus 6.69% at the initial guidance.

With the $50 million upsizing to the term loan, the adjoining high-yield execution will be scaled back by the same amount, to $575 million. Citigroup will be left lead on the bonds.

With the shift in funds, the leads are marketing pro forma net leverage of 4.2x through the secured debt and 5.8x on a total basis, sources said. The sponsors will be kicking in roughly $1.5 billion of equity, comprising about 41% of total capitalization.

The issuer is also putting in place a $100 million, five-year revolving credit.

Ratings are B/B2 and B/B1 facility, with a 3 recovery rating from S&P.

Thoma Bravo and Ontario Teachers’ Pension Plan in December agreed to buy the network-equipment maker for $3.6 billion. Under the terms of the agreement, Riverbed stockholders will receive $21 per share in cash.

The transaction, which is subject to shareholder and regulatory approval, is expected to close in the first half of 2015. – Kerry Kantin

 

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Och-Ziff prices $510.5M CLO via BAML; YTD volume: $10.1B

Bank of America Merrill Lynch on Friday priced a $510.5 million CLO for Och-Ziff Loan Management, according to market sources.

The transaction is structured as follows:

The non-call period expires on Dec. 15, 2016, the reinvestment period ends on Jan. 30, 2019, and the legal final date is Jan. 30, 2027.

Including Och-Ziff’s transaction, CLO issuance rises to $10.11 billion from 19 deals in the year to date, according to LCD. This is the 10th CLO to price in February for $4.96 billion. – Sarah Husband

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PetSmart trims pricing anew on TL; recommits due Tuesday

A Citigroup-led arranger group today cut pricing for a second time on the $4.3 billion covenant-lite B term loan backing BC Partners’ acquisition of PetSmart, lowering the spread by an additional 25 bps, to L+400, according to sources.

The 1% LIBOR floor and 99.5 offer price are unchanged from yesterday’s reverse-flex, but note that original guidance was for pricing of L+450-475, with a 1% floor and a 99 OID.

With today’s change, the loan offers a yield to maturity of about 5.19%, versus 5.45% after yesterday’s reverse-flex and 5.8-6.07% at the initial guidance.

Recommitments are due by 5:00 p.m. EST on Tuesday, Feb. 17, and sources note that no new commitments are being accepted. Allocations are expected in the latter half of next week.

Citigroup, Barclays, Deutsche Bank, Nomura, Jefferies, RBC Capital Markets, and Macquarie are arranging the loan; Natixis is a co-manager on the financing.

Though the LBO is expected to close the week of March 9 (the shareholder vote is slated for March 6), a ticking fee of the full spread and floor would kick in on Friday, March 20, should closing be delayed, sources noted.

Ratings are at B+/B1 corporate and BB-/Ba3 on the term loan, with a 2 recovery rating.

The transaction, which was announced in December, is valued at about $8.7 billion, which represents a 9.1x multiple of PetSmart’s adjusted EBITDA for the 12 months ended Nov. 2, according to the company.

Leverage is being marketed at 4.5x net secured, 6.3x net total, sources said.

The transaction includes an incremental facility of $800 million, plus the amount of voluntary prepayments of the TLB plus an unlimited amount up to net first-lien leverage at closing (including capital leases and borrowings under the ABL), subject to 50 bps MFN protection, sources noted.

The issuer is also seeking to put in place $1.9 billion of eight-year (non-call three) unsecured notes via a Barclays-led bookrunner group. A roadshow runs through next Thursday, for pricing thereafter.

The debt financing also provides for a $750 million asset-based facility.

The consortium, including funds advised by BC Partners, alongside several of its limited partners, including La Caisse de dépôt et placement du Québec and StepStone, will pay $83 per share in cash for PetSmart. Longview Asset Management, which owns or manages about 9% of PetSmart’s outstanding shares, has committed to vote in favor of the transaction and will participate in the consortium, retaining roughly one third of its current stake, the company said.

The sponsors, excluding Longview, will kick in up to $1.83 billion of equity; Longview will roll over approximately three million of its current shares, the filing notes.

The Phoenix-based retailer operates approximately 1,387 pet stores in the U.S., Canada, and Puerto Rico. – Staff reports

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Outflows to US leveraged loan funds dwindle to $25M; ETFs gain

us loan fund flows

Cash outflows from bank loan funds were just $25 million for the week ending Feb. 11, marking the lowest outflow reading since the week ending April 23, 2014, and not including two weeks of inflows within that time frame, according to Lipper.

This week’s outflow compares to outflows of $511 million and $443 million in the previous two weeks. For a third consecutive week, the redemption was offset by inflow to the exchange-traded-fund segment, at $31.4 million this week compared to just $579,000 last week.

The latest outflow represents the 31st consecutive weekly withdrawal and the 42nd outflow in 44 weeks, for a net redemption of $27 billion over that span.

The trailing four-week average declines to negative $429 million for the week, from negative $572 million last week and negative $537 million two weeks ago. The negative observation seven weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The net $2.7 billion outflow for the first six weeks of the year, with 2% ETF-related, is in contrast to last year, which showed a net inflow of $4.2 billion for the same period, with 12% ETF-related. For the full-year 2014 outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report the change due to market conditions was positive $306 million, or roughly 0.35% against total assets, which were $86.8 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%. – Joy Ferguson

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LCD’s Daily Leveraged Loan Playbook: Your Guide to today’s market

LCD each days gives leveraged loan market players a quick, simple way to catch up on the market and prepare for the day’s activity: The Daily Leveraged Loan Playbook.

leveraged loan daily playbook

The Daily includes a look at what’s upcoming in the current day’s new-issue and secondary markets, as well as expected developments regarding defaults, amendments and loan prices in the secondary.

It also offers snapshot statistical analysis of the day’s markets, including loan returns, recent issues, gainers/losers in the previous day’s trading market, and updated new-issue stats.

If you haven’t seen The Playbook, check it out: LCD Daily Playbook.

For more info on The Playbook or other LCD products contact Marc Auerbach