Rolls-Royce acts on low U.S. yields in rare bond market appearance

Another muted primary-market session was enlivened by a $1.5 billion deal for RollsRoyce, a name last seen in the U.S. debt markets more than two decades ago. The company, which sought to bolster its liquidity position amid share buybacks and capital-spending plans, launched $500 million of five-year notes at T+105 and $1 billion of 10-year notes at T+160, or firm to guidance ranges and substantially through initial whispers in the areas of T+137.5 and T+187.5, respectively.

Moody’s today noted that the company was motivated to capitalize on “historically low yields available in the U.S. bond market,” and said the ratings outlook at the A3 level was unaffected despite the attendant rise in leverage for the infrequent borrower.

The deal also came as the CDX IG 25 was, on net, little changed today in the 87.5 bps area, with most single-name constituents tighter for a second straight session, and with the index down from recent multiyear highs near 95 bps. But while the footing is firmer week to week, issuers unencumbered by earnings blackouts still have every reason to proceed with caution: many recent new issues continue to trade wide of issuance, including long-dated bonds placed by Hewlett Packard Enterprise in a $14.6 billion, curve-spanning offering backing its spin-off from the hardware business, a deal that the company was forced to pay 40-70 bps in new-issue concessions to clear.

Meantime, five-year CDS referencing the debt of DuPont rose 11% today to a four-year high in the mid-80 bps area, after the company yesterday said it would replace CEO Ellen Kullman with Tyco International Chairman Edward Breen, who was recently added to DuPont’s board amid what the company described as a “challenging environment” necessitating a “deep dive” into the company’s cost structure. The move dovetailed with steady pressure from activist investors to explore ways to unlock value, including via a possible breakup of the company. DuPont spreads vaulted higher from a low base in July 2013, after activist Nelson Peltz’s Trian Fund Management took a big stake in the company, in what was considered a contributing factor in DuPont’s later decision to spin off its titanium dioxide unit to shareholders.

After inking a deal to acquire Pharmedium Healthcare for $2.575 billion, the five-year CDS referencingAmerisourceBergen was steady today in the 40 bps area, which is where it has been indicated throughout the year, trade data show. ABC in February placed a $1 billion offering backing its $2.5 billion acquisition of MWI Veterinary Supply, an animal-health distribution company.

Standard & Poor’s Ratings Services today affirmed the A- rating and stable outlook on ABC, citing expectations for a “modest” increase in leverage to 1.6x for fiscal 2016, pro forma for the latest acquisition, from 1.2x. ABC plans to secure a $1 billion, five-year term loan in support of the transaction, and will fund the balance with cash on hand and by utilizing its credit facility, the company said today.

Today’s only other primary-market highlight was provided by Royal Bank of Canada’s $1.75 billion offering of 2.1% covered bonds due October 2020, which was placed at 72 bps over mid-swaps, or 2.107%. The issue was printed in line with guidance and at the firm end of early whispers in the area of 75 bps plus mid-swaps. The new 2020 covered bonds were inked at levels above the Canadian bank’s last five-year secured offering, in January, when it placed a $2 billion offering of 1.875% covered bonds due February 2020 at mid-swaps plus 44, or 1.878%. – Staff reports


Fifth Street Finance sells healthcare direct lender to rival MidCap

Fifth Street Finance Corp. has sold Healthcare Finance Group (HFG) to MidCap Financial, a competitor to HFG in direct lending to the healthcare industry.

“We decided that it was important to refocus FSC on our core lending businesses, particularly middle market sponsor-backed lending as well as technology lending and aircraft leasing,” a Fifth Street Finance Corp. statement today said.

HFG provided asset-backed lending and term loan products to healthcare companies.

As of March 31, HFG was the largest holding of FSC’s portfolio, accounting for 4.3%. The HFG investment totaled $118 million at fair value. HFG is an operating company with a portfolio consisting of individual loans to some 40 companies.

FSC acquired HFG in June 2013.

Fifth Street Finance Corp. is a business-development company that trades on NASDAQ as FSC. It is managed by Fifth Street Management. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more


InMotion receives financing from Fifth Street for acquisition

Fifth Street Finance Corp. provided the debt financing that supported the acquisition of Airport Wireless Holdings by InMotion Entertainment Group, a portfolio company of private equity firms Bruckmann, Rosser, Sherrill & Co. and Palladin Consumer Retail Partners. No further details about the financing were available.

Airport Wireless is an airport-based retailer of consumer electronics and accessories that operates under Airport Wireless, techshowcase, Tech Interaction, tech in a sec, and Touch Table.

InMotion was formed late in 2013 when BRS and Palladin acquired the assets of Project Horizon from Gate Petroleum Company. Fifth Street Finance was lead arranger and agent on a $48.2 million unitranche financing for the buyout, and also co-invested in the deal. That term loan due October 2018 for InMotion priced at L+775 with a 1.25% floor, SEC filings show.

InMotion Entertainment Group, based in Jacksonville, Fla., is an airport-based retailer. With the acquisition, the company operates 120 locations in airports across the U.S. under the InMotion Entertainment, Soundbalance, and Headphone Hub banners. – Jon Hemingway



ILFC/Delos Finance 1.5B loan rises from sub-par issuance on entering trading this afternoon

The $1.5 billion B term loan for International Lease Finance Corp. advanced to 100.25/100.75 after breaking for trading this afternoon at 100/100.5, from issuance at 99.5, according to sources. The seven-year loan is priced at L+275, with a 0.75% LIBOR floor. Issuance is at Delos Finance, a newly formed indirect subsidiary of ILFC. Deutsche Bank, Goldman Sachs, and RBC Capital Markets arranged the loan, which cleared at the tight end of talk and was upsized by $500 million. The aircraft lessor will use the proceeds for general corporate purposes. Terms:

Borrower Delos Finance
Issue $1.5 billion B term loan
Spread L+275
LIBOR floor 0.75%
Price 99.5
Tenor seven years
YTM 3.63%
Call protection six months 101 soft call
Corporate ratings N/A
Facility ratings BBB-/Ba2
S&P recovery rating N/A
Financial covenants Maximum LTV (70%)
Arrangers/bookrunners DB, GS, RBC
Admin agent DB
Px talk L+275-300/0.75%/99.5
Notes No annual amortization

HG loans: AerCap inks commitment for $2.75B bridge loan for ILFC buy

aerAerCap Holdings today disclosed it has obtained commitments from UBS and Citigroup, providing a $2.75 billion bridge loan in connection with the company’s planned acquisition of International Lease Finance Corporation, a wholly-owned subsidiary of American International Group. AerCap has also obtained a $1 billion revolver.

The acquisition is expected to close in the second quarter of 2014.

UBS is acting as administrative agent.

Under the terms of the agreement, AIG will receive $3.0 billion in cash and 97,560,976 AerCap shares. AIG will own roughly 46% of the combined company, with AerCap shareholders owning roughly 54% of the combined company. AerCap’s initial leverage ratio is expected to be roughly 5.5x, but decreasing to around 3x within four to five years, according to an investor presentation.

S&P today placed AerCap Holdings and ILFC’s BBB- corporate credit ratings on CreditWatch with negative implications.

In May, ILFC completed a $550 million offering of floating-rate senior notes. Proceeds were used for general corporate purposes, including debt repayment and the purchase of aircraft.

In April, ILFC’s Flying Fortress unit repriced its term loan to L+275, with a 0.75% LIBOR floor, from L+400, with a 1% LIBOR floor.

Both AerCap and ILFC acquire and leases commercial jet aircraft to airlines. – Richard Kellerhals


Delta Air Lines $1.34B leveraged loan repricing wraps in line with talk, tops par on entering secondary

Delta Air LinesAccounts today received allocations of the roughly $1.34 billion repriced TLB for Delta Air Lines, which broke for trading at 100.25/100.75, from issuance at par, according to sources. The loan matures in April 2017 and is priced at L+275, with a 0.75% LIBOR floor, and six months of 101 soft call protection. In addition, the loan includes a step-down to L+250 if corporate ratings are upgraded to BB- and Ba3, from B+/B1 currently. J.P. Morgan arranged the transaction, which cleared in line with talk. Lenders to the existing TLB (L+325, 1% floor) are poised to be repaid at par.


Borrower Delta Air Lines
Issue $1.34 billion TLB
UoP Repricing
Spread L+275
LIBOR floor 0.75%
Price 100
Maturity Apr-17
Call protection six months 101 soft call
YTM 3.55%
Corporate ratings B+/B1
Facility ratings BB/Ba1
S&P recovery rating 1
Financial covenants yes
Bookrunners JPM
Admin agent JPM
Notes Includes step-down to L+250 if corporate ratings upgraded to BB-/Ba3

Global Aviation files for Chapter 11 again, this time in Delaware

globaviationGlobal Aviation Holdings filed for Chapter 11 in Wilmington, Del., the company announced this morning. The filing included its two operating units, World Airways and North American Airlines.

In a news release, the company said it was “taking steps to align its cost structure with the realities of market demand,” specifically announcing that it would reduce its workforce by 16% over the next 90 days.

The company described itself as “the largest commercial provider of charter air services to the US Military and a major provider of worldwide commercial global passenger and cargo air transportation services.”

As reported, the company emerged from a prior Chapter 11 filing – this one in Brooklyn, N.Y. – earlier this year, on Feb. 13, with a plan under which secured lenders received a combination of $4-5 million of new first-lien debt, $40 million of new second-lien debt, and 75% of the new equity in the reorganized company, a stake valued at about $45 million based on the midpoint of the reorganized company’s equity valuation. During the proceeding itself, secured lenders also received a DIP roll-up of $34.6 million.

According to the news release, “the continued worldwide downturn in commercial freight markets coupled with the military’s decision to immediately curtail its cargo expansion flying made it necessary for” the company to file again for Chapter 11.

More specifically, the company said in court filings that following its February emergence from the prior bankruptcy, it “continued to encounter various financial and operational hurdles,” citing military cargo and passenger service reductions resulting from government budget constraints. Court filings specifically said that “cargo revenue from military flying decreased due to the unexpected cancellation of fixed buy missions by the United States Air Mobility Command,” explaining that the AMC “recently and unexpectedly cancelled all expansion flying beginning Dec. 1, 2013, which reduced planned revenue for 2013 by approximately $13 million and for 2014 by approximately $54 million and created significant over-capacity in the military charter cargo business.”

The company also pointed to the recent government shutdown as “frustrating” the company’s “ability to meet its obligations” by delaying payments to the company.

The company said in the news release that it had obtained DIP financing from its first-lien lenders, but did not provide any details, and as of this morning a motion had not yet been listed on the case docket seeking approval of the facility.

The company’s Chapter 11 petition indicated it has both assets and liabilities in a range of $500 million to $1 billion, and between 50-99 creditors. – Alan Zimmerman



AMR route divestitures could resolve antitrust suit, DOJ says

American Airlines and U.S. Airways will have to give up multiple flight routes if they want to settle an antitrust lawsuit filed by the Department of Justice, U.S. Attorney General Eric Holder said at a press conference today, according to Bloomberg News.

“What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States,” Holder said, without specifying the number of slots the government wants divested.

The airlines and the DOJ are discussing the possibility of giving up takeoff and landing slots at Washington, D.C.’s Ronald Reagan National Airport, among others, the Wall Street Journal reported late Sunday, citing a source familiar with the talks.

AMR is working to resolve the DOJ’s concerns in order to implement the merger with US Airways that is the centerpiece of its Chapter 11 reorganization plan, which has already received bankruptcy court approval. If the DOJ successfully blocks the merger, AMR must return to bankruptcy court and seek confirmation of an alternative plan that would reorganize AMR as a standalone company. If AMR and US Airways reach a settlement with the DOJ, AMR must file a motion with the bankruptcy court seeking approval of the deal. (See “American Airlines confirmation order filed, but exit still on hold,” LCD News, Oct. 22, 2013).

AMR, US Airways, and the DOJ agreed to the appointment of a mediator last week. In a joint status report to the District Court in Washington, D.C. overseeing the antitrust case, the parties did not identify the mediator, except to say it was a “mediator suggested by the court.” Similarly, the status report did not provide a mediation schedule, but did say, “[t]he case is proceeding apace and is on-track to commence trial on November 25, 2013, as scheduled.”

The DOJ suit filed this August lists hundreds of city pairs where the merger is presumptively illegal, because it would stifle competition. The suit focuses, in particular, on passengers to and from the Washington, D.C. area, where the combined airline would have a monopoly on 63% of the nonstop routes served by Reagan National.

Shortly before the DOJ filed its suit, the European Commission granted regulatory approval of the proposed merger, conditional upon the release of one daily slot pair at London’s Heathrow airport to allow for competition along the Philadelphia-London route. AMR agreed to drop the flight, but the DOJ is clearly seeking a much broader set of divestitures.

Florida Attorney General Pam Bondi, who joined the initial suit against the airlines along with the attorneys general from Arizona, Pennsylvania, Texas, Virginia, and Washington, D.C., met with AMR CEO Tom Horton on Friday and issued a statement indicating hope for a “timely resolution,” the Dallas Morning News reported. The meeting suggests Florida could soon reach its own settlement with the airlines, joining Texas, which voluntarily dismissed its claims in the suit in early October.

The antitrust suit is currently scheduled for a Nov. 25 trial in Washington, D.C., before U.S. District Court Judge Colleen Kollar-Kotelly. – John Bringardner



AMR, US Airways denied access to DOJ info on earlier airline mergers

A special master overseeing discovery disputes in the Department of Justice’s lawsuit seeking to block theAmerican Airlines/US Airways merger dealt the two airlines a minor setback yesterday, recommending to the Federal judge overseeing the case that she not require the government to produce analyses it conducted for prior airline mergers for American and US Airways to use in preparing their case.

American and US Airways plan to use economic models in the case – models that the airlines contend are similar to those used by the DOJ in evaluating earlier airline mergers that won DOJ approval – showing that their proposed merger is actually pro-competitive, not anti-competitive as the government contends.

The prior mergers on which the airlines are seeking the analyses are U.S. Airways and America West (2005); Delta and Northwest (2008); United and Continental (2010); and Southwest and AirTran (2011).

The airlines anticipate, however, that the DOJ will attack their use of the models by arguing that the models are unsound (notwithstanding their previous use by the DOJ), citing as evidence the fact that the models failed to predict the anti-competitive effects of those prior mergers.

American and US Airways want the government’s prior work to show that the models’ failures to predict anti-competitive effects of the prior mergers resulted not from flaws in the models, but rather from unaccounted-for outside economic forces, in particular the financial recession, which led to the airlines’ decreased capacity following the earlier mergers. American and US Airways argue that adjusting the government’s own models for these economic forces “will show that those prior mergers are now having pro-competitive effects, albeit later in time than the earlier models would have indicated.”

The special master found that the information sought by the two airlines was relevant to their case, but could nonetheless be withheld by the DOJ on the grounds that disclosing the information would reveal too much information about the government’s legal strategy, or more specifically, the “deliberative process” and “work product” privileges granted to parties involved in litigation to protect the confidentiality of otherwise relevant information.

The special master’s ruling is only a recommendation for Federal judge Colleen Kollar-Kotelly, who has yet to actually issue a ruling in the discovery dispute.

While certainly creating extra work for American and US Airways’ lawyers in preparing their case, a ruling from Kollar-Kotelly adopting the special master’s recommendation would by no means be a death knell for the argument. American and US Airways will have access to the raw data used by the DOJ in evaluating those earlier mergers, the special master noted, and “using this material … may develop their own models assessing the earlier mergers and may use these models to show that the use of particular factors would have correctly predicted the outcome of those mergers, and that any anticompetitive outcomes stemming from those outcomes were the result of outside factors, and not due to the consolidation resulting from the mergers.”


American Airlines antitrust trial stays on schedule; Texas settles, drops out

U.S. District Court Judge Colleen Kollar-Kotelly denied a motion to stay the antitrust suit against US Airways and American Airlinesfiled by the Department of Justice, ruling Tuesday that a stay would “delay the necessary speedy disposition of this matter.”

The antitrust trial will remain on its current schedule, set for Nov. 25, in Washington, D.C.

The DOJ, which initiated the antitrust suit in an attempt to block the merger at the heart of AMR Corp.’s reorganization plan, filed its motion on Monday following a government shutdown that prohibits DOJ attorneys and employees from working except in very limited circumstances. “This is creating difficulties for the Department to perform the functions necessary to support its litigation efforts and, accordingly, the Department’s policy is to seek a stay in all pending civil litigation,” the DOJ wrote.

“It is essential that the Department of Justice attorneys continue to litigate this case,” Judge Kollar-Kotelly wrote Tuesday. The government shutdown was still in effect Wednesday, with no clear end in sight.

Also on Tuesday, American Airlines’ home state of Texas, informed the court it has reached a settlement with the airlines, though it did not specify its terms in court filings. Texas Assistant Attorney General Mark Levy filed a motion this morning seeking to voluntarily dismiss the state’s claims, with prejudice. The DOJ suit filed Aug. 13 was originally joined by the attorneys general of several states and Washington, D.C. With Texas out, the remaining plaintiffs are Arizona, Florida, Pennsylvania, Virginia, and Washington, D.C. –John Bringardner