content

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 

content

BMC Software readies $4.55B leveragd loan backing LBO by Bain

bmc software logoA Credit Suisse-led arranger group has scheduled bank meetings for next week to roll out the approximately $4.55 billion covenant-lite loan backing the $6.9 billion leveraged buyout of BMC Software, according to sources. A meeting is scheduled for 2:00 p.m. EDT on Tuesday, July 30 in New York and for 2:00 p.m. BST on Monday, July 29 in London.

The senior secured component of the financing is structured as a $3.2 billion, seven-year term loan; a €750 million, or roughly $1 billion, seven-year term loan; and a $350 million, five-year revolving credit.

Ahead of the bank meeting, the dollar term loan is talked at L+400, with a 1% floor, offered at 99. Guidance on the euro loan is E+450, with a 1% floor, offered at 99. Both tranches would include six months of 101 soft call protection.

At the proposed guidance, the dollar loan offers a yield to maturity of 5.28%, while the euro loan would yield about 5.8%.

Credit Suisse, RBC Capital Markets, Barclays, Goldman Sachs, Deutsche Bank, Citigroup, Mizuho, Jefferies, BMO Capital Markets, HSBC, and UBS are arranging the financing. Commitments will be due on Thursday, Aug. 8.

The deal backs the purchase of BMC by Bain Capital and Golden Gate Capital, together with GIC Special Investments and Insight Venture Partners. As reported, the financing commitment for the LBO also provides for a $1.68 billion unsecured bridge loan, which is expected to be replaced with high-yield bonds.

Cash equity will total $1.25 billion, and the issuer will also utilize $1.4 billion of cash on hand.

Under the terms of the agreement, which was announced in May, affiliates of the investor group will acquire all outstanding BMC common stock for $46.25 per share in cash, or approximately $6.9 billion.

BMC Software provides business services and applications across distributed, mainframe, virtual, and cloud environments. For the four fiscal quarters ended March 31, 2013, BMC had revenue of $2.2 billion. – Kerry Kantin

content

June 2013: US Leveraged Loan Market Analysis; Video, Charts

Through the first weeks of May, the loan-market’s 2013 rally persisted, however, loan prices eased about a quarter point in the last week of May. On the whole, the loan market has been resilient, bolstered by inflows from retail and institutional investors looking to loans as a way to hedge against rising rates. Looking ahead, participants expect tone in the HY market to remain a key driver of loan market conditions.

Reviewing the details:

 

 

 

 

 

 

 

 

 

 

Through the first three weeks of May, the loan-market’s virtually uninterrupted 2013 rally persisted. During the final week of the month, however, loan prices eased about a quarter point. The reason was twofold. For one thing, high-beta names came under selling pressure from high-yield accounts seeking to build cash in the teeth of outflows. For another, an increase in loan supply helped soak up some of excess liquidity that has long kept prices aloft. Thus, after generating a 0.50% return during the first 22 days of May, the S&P/LSTA Index lost 0.31% during the final 9 days of the month. All told, then, the Index eked out a 0.19% gain in May –  the smallest monthly advance in a year. Still, with the 10-year Treasury yield up about 50 bps in May, loans handily outperformed fixed-income products.

 

 

 

 

 

 

 

 

 

 

 

With CLO issuance still curtailed in May, visible inflows again fell short of the first quarter’s sky-high levels. In all, investors put $10.7 billion to work in the asset class in May, including $4.9 billion of new CLO prints and $5.8 billion in retail mutual fund subscriptions based on data from Lipper FMI.

 

 

On the other side of the technical ledger, the amount of S&P/LSTA Index loans outstanding increased $5.5 billion in May. But that was only the start. Owing to a slew of large M&A-driven executions in recent months, the backlog of new-money loans that have allocated but not yet funded into the index stood at $33 billion by the end of May, putting further pressure on loan prices.

 

 

The impact of the market’s late May swoon was felt mainly in the secondary. In the primary market, by contrast, clearing yields were largely stable with BB loans printed in a 3-3.5% band and single B’s in a 5.0% context. That said, managers were able to push back again some of the more aggressive transactions that launched in late May and early June.

 

 

Dividend financing was a major source of new primary product in May. Indeed, the amount of dividends financed by leveraged loans pushed to a record $7 billion during the month.

 

 

Turning to credit conditions, the default rate retreated to 1.4% in May from April in 1.9% and a 28-month high of 2.2% in March. Managers are constructive on the near-term outlook. On average, they expect the rate to tick up to 1.8% or so by December according to LCD latest buy-side poll taken in mid-March.

 

 

 

On the whole, the loan market has been resilient, bolstered by inflows from retail and institutional investors looking to loans as a way to hedge against rising rates.

As a result, the new-issue clearing yields have moved up only marginally in recent weeks.

Looking ahead, participants expect tone in the HY market to remain a key driver of loan market conditions.

 

A video of this presentation is available at:

http://youtu.be/XcFt7R3a7tM

Slideshare download is available at:

http://www.slideshare.net/lcdcomps/us-sld-shrjune2013v3f

– Steve Miller

content

Asurion sets $850M term loan to refinance cov-lite deal

Morgan Stanley and Credit Suisse are launching an $850 million term loan for Asurion with a call at 11:00 a.m. EDT tomorrow, sources said.

Proceeds will refinance Asurion’s amortizing, covenant-lite first-lien term loan due 2017 and fund general corporate purposes, which may include – but are not limited to – refinancing the existing holdco loan, funding return of capital to shareholders and potential acquisitions, and paying related fees and expenses, sources said.

Asurion in February tapped the market for a $3.9 billion covenant-lite term loan due May 2019, which priced at L+325 with a 1.25% LIBOR floor, and includes one year of 101 soft-call protection.

Bank of America Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, and Morgan Stanley arranged the loan, which cleared at the wide end of 99.5-99.75 guidance.

The $1 billion, 7.5-year unsecured holdco term loan is priced at L+950, with a 1.5% LIBOR floor. The loan, which was placed in February 2012, is non-callable for two years. The deal has a contingent cash-pay structure.

Asurion is rated B+/Ba3, while the first-lien loan is rated B+/Ba2. Standard & Poor’s has assigned a 3 recovery rating.

Asurion, which provides protection services for the wireless industry, is controlled by Madison Dearborn, Providence Equity Partners, and Welsh, Carson, Anderson & Stowe. – Chris Donnelly

content

Covenant-lite outstandings grow as investor market clamors for loan assets

covenant-lite loan outstandings

As cash-rich institutional investors continue to flock to the leveraged loan asset class, issuer-friendly covenant-lite deals comprise an ever-growing share of loan outstandings, which now tops 35%, according to LCD, an S&P Capital IQ unit.

It’s no wonder cov-lite outstandings are piling up. Year to date, 56% of new -issue leveraged loans have been covenant-lite. That’s up from roughly 20% at this time a year ago and from negligible numbers during the dark days of the 2008-2010.

Cov-lite loans are more appealing to issuers in that include only less-restrictive, bond-like incurrence covenants, which require an issuer to be in compliance with the loan terms only if the issuer takes a specific action (making an acquisition, for instance). Traditional loans (covenant-heavy), on the other hand, have maintenance covenants, which require an issuer to be meet specific financial criteria at regular intervals, whether or not the issuer is undertaking a specific action.

You can read more about cov-lite deals here, at LPC’s free online Loan Market Primer.

content

US Foods sets $2.1B covenant-lite leveraged loan

US Foods is launching today a $2.1 billion covenant-lite term loan. Citigroup has scheduled a lender call for US Foods for 11:00 a.m. EDT today for both new and prospective lenders, sources noted.

The term loan due March 31, 2019 will carry six months of 101 soft call protection. Price talk and use of proceeds will be outlined on the call.

The issuer last tapped the loan market in December 2012 with a $450 million fungible add-on to its covenant-lite extended term loan due March 2017, which is priced at L+425, with a 1.5% LIBOR floor, and is covered by a 101 soft call premium that lapses next month.

In June 2012, lenders holding about $1.24 billion of the issuer’s roughly $1.94 billion covenant-lite term loan extended their paper to March 31, 2017. The term loan dates to the 2007 LBO of the foodservice distributor, then known as U.S. Foodservice, by Clayton Dubilier & Rice and Kohlberg Kravis Roberts & Co. Corporate ratings are B/B3. The secured debt is rated B-/B3, with a 5 recovery rating. – Staff reports

content

Cov-relief, A-to-E activity remain slow in hot April loan market

 

 

 

 

 

 

 

 

 

 

 

Amendment activity was lackluster again in April. With liquidity running hot in the institutional market, amend-to-extend activity was limited to pro rata loans. Covenant-relief activity, meanwhile, remained slow. In all, four issuers loosened tests on $2.8 billion of leveraged loans, versus $5.8 billion in March.

This chart is part of an LCD News analysis available to subscribers. Other charts in that analysis:

  • Amend-to-extend volume
  • 2014 maturity wall


– Steve Miller

content

Issuer’s market: Covenant-lite loan volume nears all-time record

covenant-lite loan volume

Covenant-lite loan volume in the U.S. so far in 2013 has topped levels seen during all of 2012, and is fast approaching the full-year record set in the pre-Lehman market of 2007, according to S&P Capital IQ/LCD.

Year-to-date cov-lite loan volume stands at $93.5 billion, as issuers and private equity firms rush to take advantage of an accommodating institutional investor market that is sitting atop a seemingly ever-growing mountain of cash.

The full-year covenant-lite loan total for 2012 was $86.7 billion. The record annual volume is $96.6 billion, in 2007.

About that investor cash. Net inflows into loan mutual funds and ETFs have totaled nearly $16 billion so far this year, riding a 44-week streak of inflows, according to Lipper FMI. CLOs have played a major role here, as issuance in that market has boomed so far in 2013 after being left for dead after the 2008-09 financial markets collapse.

While cov-lite activity is eye-popping – these deals comprise more than half of all first-lien leveraged loans completed so far this year – it should be noted that the bulk of loan market activity in 2013 has been straightforward repricings/refinancings, as opposed to more high profile M&A/LBO deals.

Covenant-lite loans are those that have bond-like incurrence covenants, as opposed to more-restrictive maintenance covenants. Historically, as the leveraged loan market heats up and technicals shift in favor of issuers, cov-lite issuance grows. – Tim Cross

content

Hostess term loan backing Apollo buyout gains on entry into trading mart

hostess logoAccounts yesterday received allocations of the $500 million covenant-lite term loan for Hostess Brands, which has advanced to a 100.5 bid after breaking for trading at 100/100.5, from issuance at 99, sources said. The seven-year loan is priced at L+550, with a 1.25% LIBOR floor. The loan is non-callable in the first two years, followed by 102, 101 call premiums in years three and four, respectively.

At 99, the loan yields about 7.12% to maturity. The yield tightens to 6.88% at the midpoint of the opening market.

Hostess, which is in the process of liquidating its assets and brands, is selling its snack-cakes business to Apollo Global Management and Metropoulos & Co. Apollo and Metropoulos’ $410 million bid for the unit was the stalking-horse bid, though according to a notice filed yesterday by Hostess with the bankruptcy court in White Plains, N.Y., the Apollo and Metropoulos bid was the “only qualified bid that was received by the debtors,” and that as a result, no auction would be held.

Prior to allocating the deal, Credit Suisse and UBS this morning added a ticking fee to the deal. It is set at zero basis points for the first 30 days, but would step up half of the drawn spread, or 275 bps, thereafter. A hearing to approve the sale is scheduled for March 19, and sources note the ticking fee was added to the deal in the instance there is an appeals process.

As reported, the arrangers last week cut pricing on the term loan, which was originally talked at L+600-625, with a 1.25% LIBOR floor and a 98.5 offer price. In addition, the loan was upsized by $50 million. The incremental debt is earmarked for general corporate purposes, which sources note could include a potential higher bid for Hostess Snacks, a reduction to the equity contribution, or a potential bid for snack-food business Drake’s.

The financing also includes a $60 million asset-based revolver. – Kerry Kantin/Chris Donnelly

 

content

Twinkies, Ho-Ho’s New Home: Apollo, Metropoulos team for Hostess cakes biz, launching Wednesday

Credit Suisse and UBS are arranging financing backing the purchase of the Hostess Brands cakes business by Apollo and Dean Metropoulos, sources said.

A bank meeting is set for Wednesday as the issuer comes to market with a $450 million, seven-year covenant-lite term loan and a $60 million asset-based revolver.

Price talk and ratings have yet to emerge.

Commitments will be due on Friday, March 8.

The Hostess reorganization will see the bread business sold to Flowers Foods as Apollo and Metropoulos take the snack brands. Although purchase prices haven’t been announced, Hostess suggested in a bankruptcy court filing earlier this month that proceeds could top $1 billion. – Chris Donnelly