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Varsity Brands, controlled by Charlesbank Capital Partners, issues $805M loan

Accounts yesterday received allocations of the first-lien term loan for Varsity Brands, which ticked to 100.25/101, from an opening market of 100.125/100.875, and issuance at par, according to sources. The covenant-lite loan due December 2021 is priced at L+400, with a 1% LIBOR floor. Via the transaction, the issuer is repricing its approximately $755 million first-lien term loan down from L+500, with a 1% floor, while also layering in an additional $50 million to repay a portion of its second-lien term loan due 2022. Goldman Sachs arranged the deal, which triggers the 101 soft call premium on the existing loan. The repricing component of the transaction cleared in line with talk, though the offer price on the add-on was tightened to par, from original guidance of 99.75. Memphis, Tenn.-based Varsity Brands, which is controlled by Charlesbank Capital Partners, is a manufacturer, marketer, and distributor of sports, cheerleading, and achievement-related products to schools across the U.S. Terms:

Borrower Varsity Brands
Issue $805 million first-lien term loan
UoP Repricing, partial refi of 2nd-lien
Spread L+400
LIBOR floor 1.00%
Price 100.000
Maturity December 2021
YTM 5.1% at par/5.29% including 101 SC payout
Call protection six months 101 soft call
Corporate ratings B/B2
Facility ratings B+/B1
S&P recovery rating 2L
Financial covenants none
Leverage 3.8x first-lien, 5.2x total
Bookrunners GS
Admin agent GS
Sponsor Charlesbank Capital Partners
Px talk L+400/1%/100 (repricing) /99.75 (add-on)
Notes Upsized by $50 million as tack-on was added to deal during the syndication process
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JC Penney bonds gain on earnings, loan investors eye call protection

Bonds backing J.C. Penney advanced this morning, just as credit protection cheapened, after the retailer reported better-than-expected quarterly results. Shares dropped, however, with JCP trading on the NYSE roughly 7% lower, at $8.07 per.

The 8.125% notes due 2019 advanced two points, to 101/101.5, while the 5.65% notes due 2020 ticked up half of a point, to 87/88, according to sources. Long-tenor 7.4% bonds due 2027 changed hands in blocks at 83.5, which is up roughly two points from recent prints, trade data show.

Over in the CDS marketplace, five-year protection on the credit tightened roughly 19% this morning, to 4.8/5.7 points upfront, according to Markit. That’s approximately $125,000 cheaper upfront, with a mid-point $520,000 initial payment, in addition to the $500,000 annual expense, to protect $10 million in J.C. Penney bonds.

The company reported net sales of $2.86 billion during its fiscal first quarter ended May 2, up from $2.8 billion in the year-ago fiscal first quarter, according to a corporate filing. Results were in line with the S&P Capital IQ consensus estimate for sales; however, the adjusted EBITDA result of $82 million in the quarter was well ahead of the consensus estimate of $29 million.

Looking ahead, the company tightened its 2015 full-year guidance for a sales increase by 4-5%, from 3-5% previously, and put forth an estimate for $600 million in EBITDA, versus none prior, filings show.

Over in the loan market, J.C. Penney’s covenant-lite term loan due 2018 (L+500, 1% LIBOR floor) was little changed on the news, quoted at 99.875/100.25, according to sources. On yesterday’s conference call, CFO Edward Record noted that the 101 hard call protection rolls off the loan this month.

“It’s something we continue to look at,” Record said, according to a transcript of the call provided by S&P Capital IQ. “We know it is probably over-collateralized, and there may be some opportunity there. We also know that it doesn’t come due to 2018, so we don’t have a gun to our head to have to do anything any time soon. We’ll continue to monitor rates and see if there’s any opportunity to do something there.”

The loan, originally $2.25 billion, was placed in May 2013; it originally included 102, 101 call premiums. Goldman Sachs is administrative agent.

The Plano, Texas-based company is rated CCC+/Caa2, with positive and stable outlooks, respectively. – Matt Fuller/Kerry Kantin

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

 

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Alvogen $700M leveragd loan allocates, breaks above 99.5 OID; terms

Investors today received allocations of the $700 million covenant-lite term loan for Alvogen Pharma US, which freed to trade at 100/100.5, from issuance at 99.5, according to sources. The seven-year loan is priced at L+500, with a 1% LIBOR floor. Jefferies, Goldman Sachs, and SunTrust Robinson Humphrey arranged the loan, which cleared inside of original talk and was upsized by $25 million. Proceeds will be used to repay the roughly $283 million outstanding under the issuer’s existing term loan, repay other debt, including a $255 million short-term bridge loan provided by Jefferies and sponsor Pamplona Capital Management, and fund general corporate purposes at parent Alvogen Group, sources said. The $25 million of additional proceeds are available for GCP and may be used to fund future potential acquisitions. Note the capital structure also includes a $75 million asset-based revolver. Alvogen is a multinational drug company focused on complex generic products. Terms:

Borrower Alvogen Pharma US
Issue $700 million B term loan
UoP Refinancing, GCP
Spread L+500
LIBOR floor 1.00%
Price 99.5
Tenor seven years
YTM 6.25%
Call protection six months 101 soft call
Corporate ratings B/B3
Facility ratings B/B3
S&P recovery rating 4L
Financial covenants none
Arrangers JEFF, GS, STRH
Admin agent JEFF
Px Talk L+500/1%/99
Sponsor Pamplona
Notes Amortizes at 5% p.a.; upsized by $25M; ECF opens at 50%, with leverage-based step-downs
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Mueller Water launches $500M cov-lite leveraged loan to refinance debt

Bank of America Merrill Lynch, J.P. Morgan, Wells Fargo, SunTrust Robinson Humphrey, TD Securities, Goldman Sachs, Credit Suisse, and MCS Capital Markets launched their refinancing for Mueller Water Products, setting price talk of L+375, with a 0.75% LIBOR floor, and a 99-99.5 offer price on the $500 million, covenant-lite, seven-year term loan B, sources said.

The leveraged loan includes six months of 101 soft call protection and would yield 4.67-4.76% to maturity.

Commitments are due on Nov. 20.

Mueller refinanced out of the institutional loan market in 2010 via an asset-based RC and bond deal.

The issuer is rated BB-/B1. The loan is rated BB/B2, with a 2 recovery rating.

At Sept. 30, total debt was $545.6 million and included $365 million of 7.375% senior subordinated notes due 2017, $178.3 million of 8.75% senior unsecured notes due 2020, and $2.3 million of other debt. Net leverage was down to 2.1x at Sept. 30, 2014.

Mueller is a leading manufacturer and marketer of products and services used in the transmission, distribution, and measurement of water in North America. – Chris Donnelly

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Cancelled deal due to market conditions: HCP Global joins handful of recent withdrawals

 hcp_200x200HCP Global Limited this morning withdrew its covenant-lite dividend recapitalization loan citing market conditions, according to sources.

The first- and second-lien financing launched to market late last month via Citigroup, Bank of America Merrill Lynch, and BNP Paribas. Commitments were due yesterday.

HCP’s deal is one of a handful of loans to be pulled or postponed amid challenging market conditions in recent days. SeaStar SolutionsBlackboard, and Paradigm all cancelled proposed repricings, while QSRH (Red Rooster) withdrew a planned refinancing. Styrolution, meanwhile, has shelved a cross-border M&A-related transaction.

The HCP transaction included a $50 million, five-year revolver; a $230 million, seven-year first-lien term loan; and a $100 million, eight-year second-lien term loan. The first-lien was originally talked at L+375, with a 1% LIBOR floor, offered at 99. Guidance on the second-lien was L+725-750, with a 1% floor and a 99 OID.

The first-lien loan included 12 months of 101 soft call protection and offered a yield to maturity of 5.02% at original talk. The second-lien loan included 102 and 101 call premiums and offered a yield of 8.7-8.96%.

Proceeds would have been used to refinance existing debt and fund a dividend to shareholders. The Taiwan-based cosmetics-packaging firm was acquired by TPG in 2012.

HCP produces packaging for global cosmetics firms, including L’Oreal SA, Shiseido Co. and Procter & Gamble Co. – Kerry Kantin/Chris Donnelly

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July 2014 European Leveraged Loan Market Analysis – Video, Slides

This is S&P Capital IQ’s monthly loan market update. In this post, we concentrate on the trends at work in the European leveraged loan market during 2014 so far, including an increase in M&A financing and some signs of heating in the market. We’ll also touch on the question of whether some slowdown is to be expected.

Eur1

 

Out of the €45 billion of leveraged loan issuance so far this year, M&A-related deals contributed €25 billion, more than double what was raised in the first half of last year. This total was boosted by some jumbo corporate M&A deals, most recently  the cross-border financing for Jacobs Douwe Egberts. Among sponsor-backed buyouts, LCD tracked an increase in the number of asset sales by corporates and families, bringing some welcome debut borrowers to the loan market.

Eur2ELLI

Institutional investors continued to show strong appetite for leveraged loans during the second-quarter, and heavy repayments on existing loans spurred them on. In fact repayments reached a record quarterly high of €16.6 billion, based on the S&P European Leveraged Loan Index, as the chart shows.

eUR3-CLO

Adding to institutional demand, there was lively issuance of new-generation CLOs, particularly during June, including some new managers entering the 2.0 market, and sources say the pipeline for further CLO issuance in the second half of the year looks healthy.

eur4EBITDA

Through much of the year so far, there has been relatively little complaint from buyside firms about leverage multiples, and indeed first-lien leverage is pretty much flat on last year at around 3.7 times EBITDA. But second-lien tranches are appearing more frequently, and this helped drive total leverage a little higher, to 4.9x. Some arrangers argue leverage is unlikely to spiral up and up because this would result in deals coming to market with low single-B ratings, these often being hard to shift in syndication.

eur5covlite

Instead, the market is showing its aggression in other ways – particularly in the use of covenant-lite loans. €10 billion of cov-lite paper – a record – has been raised this year, meaning that roughly one in three euros sold to fund managers had no maintenance covenants. The ELLI Index now includes a 13% cov-lite portion, the highest in its history – although a long long way behind the U.S., where the trend started.

EUR6

However, from the point of view of yields, Europe looks less aggressive than it did earlier in the year as this chart suggests. Behind the scenes, yields on domestic European deals were flat from the first quarter to the second. But in line with the weaker technical picture in the U.S. market, cross-border yields widened in recent months, dragging the average out too.

Looking ahead, some kind of summer slowdown is likely, but arrangers say they are pitching on some aggressively structured deals and will be looking out for signs of pushback among investors if terms get too heated.

 

The video is available here.

The URL for the video:

PDF slides of the video on Slideshare is available here.

URL for the slides:

While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you won’t miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email.

– Ruth McGavin

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YouTube: June 2014 US leveraged loan market analysis (plus slides)

LCD’s video analysis detailing the US leveraged loan market during May is now on YouTube.

Loan prices rebounded during the month after April’s mini correction, a result of strong CLO issuance and slowing volume.

Looking to the summer, most players think the market will remain largely CLO-driven, with retail a slight drag on demand. Loan supply, meanwhile, is roundly expected to be lackluster. Though the M&A loan calendar remains within the recent range, some transactions are not expected to launch until the fall, and there are few blockbuster executions in the mix.

This month LCD looks at:

  • Average Bid of S&P/LSTA Loan Index
  • S&P/LSTA Index Loans Outstanding
  • Visible inflows
  • Average New-Issue Clearing Yields of First-Lien Loans
  • Loan Default Rate
  • M&A Institutional Loan Forward Calendar

The video is available here.

The URL:

Click here to download PDF slides of the video on Slideshare.

While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you’ll be certain not to miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email, or here:

http://www.youtube.com/user/LCDcomps

If you’d like to embed any LCD video on a web page or in other digital media, it’s simple via the “embed” button on the YouTube page for the video. You can also embed the slides via Slideshare.

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Leslie’s Poolmart (CVC) repriced leveraged loan enters trading above par

Leslies

Accounts on Friday received allocations of the repriced $610.5 million covenant-lite term loan for Leslie’s Poolmart, which broke for trading at 100.25/100.75, from issuance at par. The loan due October 2019 is priced at L+325, with a 1% LIBOR floor, with six months of soft call protection. Bank of America Merrill Lynch arranged the transaction, which cleared in line with original guidance. Via the transaction, the issuer is reducing pricing from L+400, with a 1.25% LIBOR floor, with two leverage-based step-downs; the existing deal is callable at par. The pool-supplies company is controlled by CVC Capital Partners.

Terms:

Borrower Leslie’s Poolmart
Issue $610.5 million term loan
UoP Repricing
Spread L+325
LIBOR floor 1%
Price 100
Maturity October 2019
Call protection six months 101 soft call
YTM 4.32%
Corporate ratings B/B3
Facility ratings B/B2
S&P recovery rating 4
Financial covenants none
Bookrunners BAML
Admin agent BAML
Sponsor CVC Capital Partners
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YouTube, slides: October 2013 US Leveraged Loan Market Analysis

LCD’s video analysis detailing the US leveraged finance market during September is now on YouTube.

With interest rates trending lower during the month loan returns trailed those of high-yield and other fixed-income categories, reversing the pattern of the prior four months, when 10-year Treasury rates were on the rise. Looking ahead, most participants think supply is more likely to ebb than to rise in the out months of 2013.

This month LCD looks at:

  • Leveraged loan volume
  • Average bid of S&P/LSTA loan 100 index
  • S&P/LSTA Index loans outstanding
  • Visible inflows
  • New-issue clearing yields of first-lien loans
  • Covenant-lite share of  new issue volume
  • High yield bond prices
  • Loan default rate
  • M&A institutional loan forward calendar

The video is available here.

The URL for the video:

PDF slides of the video on Slideshare are available here.

URL for the slides:

(If you’re reading this on lcdcomps.com the video is at the end of this story.)

While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you won’t miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email, or here:

http://www.youtube.com/user/LCDcomps

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Rue 21 loan backing Apax’s $1.1B LBO extends gains in secondary, rises to mid-80s

The $538.5 million covenant-lite term loan for Rue 21 has extended gains on the break, rising to an 84/85 market today, with one desk bidding as high as 86 for the paper, sources said.

The seven-year loan, which is priced at L+462.5, with a 1% LIBOR floor, was issued late yesterday at 81.5, and opened bid at 82.5. The gains in the paper come amid rangebound but quiet secondary market conditions today.

The loan, which backs Apax Partners’ $1.1 billion LBO of the fashion apparel retailer, is poised to close shortly. The accompanying $250 million bond bridge was never distributed and the notes remain unsold, although sources have speculated that a strong break into the secondary of the fully distributed term loan could open the door to a selldown of the unsecured debt.

The loan ultimately printed at a steep discount to par – albeit toward the tight end of a revised 80-82 range – after underwriters J.P. Morgan, Bank of America Merrill Lynch, and Goldman Sachs garnered additional commitments after circling it with a core group of investors after weeks of behind-the-scenes discussions. The financing commitment for the LBO also provides for a $150 million asset-based revolver.

The issuer is rated B-/Caa1, while the term loan is rated B-/B3, with a 4 recovery rating from S&P. Apax is purchasing Warrendale, Pa.-based Rue 21 for $42 per share. – Kerry Kantin/Chris Donnelly