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B&G Foods to seek $500M term loan, tap revolver for Green Giant, Le Sueur buy

B&G Foods disclosed that it will seek to add a new roughly $500 million incremental term loan to its existing pro rata credit facility in connection with its planned acquisition of Green Giant and Le Sueur brands from General Mills for roughly $765 million in cash. B&G Foods also disclosed that it intends to tap its undrawn $500 million revolver.

As reported, B&G Foods completed an $800 million pro rata loan package in the summer of 2014 to refinance a previous pro rata loan deal. The 2014 deal included a $300 million A term loan and the $500 million revolver. Pricing is tied to a leverage-based grid of L+150-200.

Credit Suisse, Barclays, RBC, Bank of America Merrill Lynch, Deutsche Bank, TD, RBS Citizens, and Rabobank arranged that transaction.

As of July 4, there was $285 million outstanding under the A term loan due 2019.

The existing facility includes a leverage test of 7x through 2015, stepping to 6.75x in 2016 and 6.5x thereafter. It also includes an interest-coverage test of 1.75x.

The Green Giant and Le Sueur acquisition is expected to close in the fourth quarter. Following a 12-month transition period, Green Giant is expected to generate annualized net sales of roughly $550 million and annualized adjusted EBITDA of roughly $95-100 million.

Parsippany, N.J.-based B&G Foods is rated BB-/Ba3. – Richard Kellerhals

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Lannett nets $1.285B commitment for Kremers Urban acquisition

Lannett Company disclosed that it has entered into a commitment letter with Morgan Stanley and RBC providing a $1.285 billion credit facility in connection with the generic-pharmaceutical company’s planned $1.23 billion acquisition of Kremers Urban Pharmaceuticals.

Under the terms of the commitment letter, the credit facility includes a $1.16 billion term loan and a $125 million revolver.

The acquisition is expected to close in the fourth quarter.

Philadelphia-based Lannett expects pro forma leverage to be roughly 3-3.25x, according to an investor presentation. – Richard Kellerhals

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Loan bids recoup some losses in week-over-week observation

The average bid of LCD’s flow-name composite advanced 18 bps over the past week, to 98.33% of par, from 98.15 on Aug. 26. (Due to light secondary activity, LCD is reading the flow-name composite once a week, on Wednesdays. We will resume the regular Tuesday/Thursday schedule after Labor Day.)

Among the 15 names in the sample, 10 advanced, one declined, and four were unchanged from the previous reading. Posting the largest moves in either direction were the Charter Communications F term loan due 2021, the PetSmart term loan due 2022, and the Restaurant Brands (Burger King) term loan due 2021, each of which was bid a half-point higher in the previous reading. Note that today’s positive reading snaps a streak of six consecutive declines in the average bid price.

The market has continued to recoup some of the losses posted early last week on concerns about China. Activity has been thin during what is typically a quiet time of the year, but as noted previously, loans have outperformed equities and high-yield last month, and so far in September have been stable despite this week’s swings in stocks.

Looking ahead, players say that although the loan markets and the capital markets overall clawed back lost ground in late August, the watch words for September are “price discovery.” For one thing, all the issues that caused the markets to correct in August – full valuations in the equity markets, China’s currency devaluation and economic slowdown, woes in the emerging markets, tepid economic growth in the U.S., weak oil prices, uncertainty over whether the Fed will begin raising the funds rate – remain in effect. Therefore, arrangers say August’s secondary market decline has left the new-issue market in price discovery mode. Players say it’s tough to gauge where clearing yields will settle once the new-issue market reopens post-Labor Day, which, after all, will be after a new-issue hiatus of several weeks.

With the average loan bid rising 18 bps, the average spread to maturity dropped four bps, to L+427.

By ratings, here’s how bids and the discounted spreads stand:

  • 99.5/L+369 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+367.
  • 96.58/L+529 for the six loans rated B or lower by one of the agencies; STM in this category is L+501.

Loans vs. bonds 
The average bid of LCD’s flow-name high-yield bonds added 82 bps, to 97.60% of par, yielding 7.40%, from 96.78 on Aug 26. The gap between the bond yield and discounted loan yield to maturity stands at 315 bps. – Staff reports

To-date numbers

  • September: The average flow-name loan increased 18 bps from the final August reading of 98.15.
  • Year to date: The average flow-name loan advanced 141 bps from the final 2014 reading of 96.92.

Loan data

  • Bids gain: The average bid of the 15 flow names rose 18 bps, to 98.33% of par.
  • Bid/ask spreads tighten: The average bid/ask spread shrank four basis points, to 34 bps.
  • Spreads drop: The average spread to maturity – based on axe levels and stated amortization schedules – edged down four basis points, to L+427.
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High yield bond market in Aug: slow issuance, wider spreads

High-yield issuance in August was $10.2 billion, barely surpassing the $10 billion of volume in July but outpacing the $3.1 billion priced last August, LCD data shows. Note that issuance concluded on Aug. 19, when KIK Custom Products priced the last deal before the late summer shutdown. August is now the second slowest month of the year, next to July, with June the third slowest month at $21.2 billion. For the year-to-date, volume in 2015 through August is 1.4% behind last year’s pace, at $205.85 billion versus $208.80 billion. That gap has narrowed from the 5% decline at the end of July, but prior to July, volume had been running ahead of the pace for 2014.

Recall July’s slowdown was tied to commodities volatility, China’s stock market plunges, and early in the month, fears of a default in Greece. In August, those issues, apart from Greece, took an even greater toll on the market, and the debate continues over whether the Fed will raise interest rates in September. More participants are taking the view, given the latest disruptions in global markets, that it won’t.

Had the high-yield primary market not already shut down by Aug. 19, the tough conditions late-month would have certainly prevented issuers from tapping the market regardless. Already, several of the 19 deals that priced in August had to come with healthy concessions as investors pushed back amid tough conditions. As seen in June and July, the bulk of issuance came from time-sensitive M&A and LBO issuers, to represent 39% of total volume for the month, although dividend and recapitalization/stock repurchase use of proceeds both grew as compared to previous months.

The yield to worst on the S&P U.S. Issued High-Yield Index finished the month much wider at 7.17%, from 6.59% on July 31. The option-adjusted spread widened to T+573, from T+511 at the end of July. – Joy Ferguson/Matt Fuller

HY market in Aug

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Loan default rates climb in August amid weakness in Energy sector

After a two-month absence, default activity resumed in August, when two energy names – Samson Resources and Alpha Natural Resources – defaulted on $1.6 billion of S&P/LSTA Index loans. As a result, the lagging-12-month default rate climbed to a five-month high of 1.30% by amount, from July’s 33-month low of 1.11%, and to 0.78% by number of issuers, from a 7.5-year low of 0.57%.

Loan index defaults Aug 2015