....................................................................GOLD SHEETS Vol XXVI, No. 41 A Thomson Reuters LPC Publication October 29, 2012 5 THINGS TO KNOW ABL issuance down as lenders Facing a looming $1.5B maturity on its hope for M&A pickup ahead – by Maria C. Dikeos main credit line next February, OSG has 1 Asset-based lenders have found them- 1-3Q11 issuance was already $30 billion hired Chilmark Partners and Proskauer Rose for fi nancial and legal advice, selves less busy in the last several months greater than the previous market peak for respectively, to prepare for a potential than they would have hoped – largely a the nine-month period in 2007. Chapter 11 fi ling. p. 17 refl ection of the slimmer deal pickings “Certainly the level of activity that we are Thomson Reuters LPC’s Loan Market that they have had so far this year. At $57 seeing isn’t unexpected,” said an arranger. 2 Scoreboard provides a snapshot of key billion, 1-3Q12 ABL volume represented “Last year, we saw so many deals that is- statistics in the leveraged loan and high yield bond markets. p. 3 a 45 percent drop over year-ago levels suers would have done in 2009 and 2010, Business development company Monroe (Fig. 1). but they did not due to price points. So, last 3 Capital Corp priced its initial public Issuance totals were not the only mea- year we had repricings.” offering at $15 per share, raising sure of the market slowdown. Lending New ABL volume came in under $15 billion approximately $75M in gross proceeds. activity based on deal count also showed in 1-3Q12, or 26 percent of total issuance p. 18 a 25 percent decline from year-ago levels for the year. Although the proportion of new M&A activity is expected to crank to close out the fi rst nine months of 2012 lending activity is up from the 18 percent higher given the favorable interest 4 with 242 syndicated credits, compared to observed in 2011 and on par with 2010 levels, rates available in the leveraged credit market and the substantial amount of 302 deals in 2011. it is a far cry from levels hovering near or dry powder private equity fi rms are still “It’s hard not to think of this year as slow,” above 50 percent of total issuance between sitting on. p. 19 said one lender. “But really it is a more nor- 2006 and 2008 (Fig. 2). In many cases, the Kinetic Concepts revealed details on its malized year coming off such a high in 2011.” 2012 new money transactions were only new $2.5B repricing. The credit consists 5 Providing a bit of perspective, at $101 offered to smaller groups of relationship of a $200M revolver, a $1.618B billion TLC-1, a 248M euro TLC-1, and a $323M billion, 2011 issuance represented record TLC-2. p. 17 volume for the market, and at $383billion, (ABL cont’d on p. 2) BSL GRID WHAT TO WATCH LPC COLLATERAL Avg. Min. Max. Avg. Fully Avg. • CHG Healthcare is launching October 30 a $765 Applic. Undrawn Undrawn Undrawn Drawn Fac Rating (LIB spread Size million covenant-lite credit. Goldman Sachs will THE FIRST STEP IN + Ann ($Mils.) launch the deal at a bank meeting at Le Parker + Usage) CLO ANALYSIS 364-day Meridien in New York. AA 5.75 4.00 7.50 78.27 2,500.00 Detailed. Accurate. Transparent. A 12.50 5.00 20.00 112.50 1,725.00 • Minera Frisco will tap the New York market BBB 10.17 8.00 12.50 95.83 400.00 November 1 with a $1.5B senior secured term loan. Bank of America Merrill Lynch is leading the deal. LPC COLLATERAL provides Multi-year AA 8.00 7.00 10.00 83.33 2,083.33 • Tempur-Pedic Intl Inc is coming to market October a competitive edge to A+ 9.50 9.00 10.00 93.75 1,000.00 31 with a new $1.77B facility. Bank of America Merrill CLO investors, managers A 9.50 8.00 12.50 95.83 1,166.67 Lynch leads. A- 11.25 10.00 12.50 104.17 973.33 and traders. BBB+ 13.33 12.50 15.00 113.13 750.00 • Year to date CLO issuance currently stands at roughly BBB 16.67 15.00 20.00 131.25 1,125.00 $38B. For more information e-mail BBB- 27.50 22.50 35.00 163.75 868.75 • Last week, 2012 high yield bond issuance became Thomson Reuters LPC uses the 3-5 latest transactions in each [email protected] or visit ratings category. The credits represent syndications that were not the highest on record, beating out 2010’s $259.28B substantially under- or over-subscribed. Agent and syndications and 2011’s $219.65B. This month is the busiest www.loanpricing.com fees are not included. Leveraged BSL Grid available at www. loanconnector.com October on record for HY volume. Copyright notice: Any copying, redistribution (including electronic forwarding) or republication of Thomson Reuters LPC publications, or their content is strictly prohibited. Copyright © 2012 ASSET-BASED LENDING — cont’d from p. 1 Fig. 1: 1Q-3Q12 ABL volume down 45% year over year; Jack came to market. Although the deal 39% decline quarter over quarter did not ultimately close following a with- drawal by the private equity sponsor, the $35 140 Volume B Deal Count credit, which included an ABL component, B $30 B 120 was structured with aggressive terms and B B B conditions, according to several sources. B B $25 B B B B 100 B B B B One of the biggest areas of concern focused B B B B B $20 B B B 80 on the application of a grace period for the ($Bils.) B B B issuer to correct should availability fall be- B B B B $15 B 60 Deal count low specifi ed levels or should the springing BBB Issuance B fi xed-charge coverage ratio be breached. $10 40 LPC Thomson Reuters Source: Arguably, the example of individual deals $5 20 could refl ect market aberrations suited to the specifi c issuers in question. Nonethe- $0 0 less, a number of ABL credits have seen 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 pushback. lenders at the expense of broader, retail majority of these deals came in the form “Banks are defi nitely reading documenta- syndications. of clubbier transactions marked by larger tion and depending on how oversubscribed Despite some cautious optimism regis- hold positions and fairly aggressive terms a deal is, there will be pushback and some tered among leveraged cash fl ow lenders in and conditions. negotiation,” said one lender. 3Q12 – especially in the context of a robust In 3Q12 specifi cally, two out of the three The Albaco Scottsman deal required a high yield bond market, cash infl ows to retail sponsored M&A credits that closed were for pricing step-up due to its international funds and over $34 billion of new CLO for- existing ABL issuers – Party City (previously component. AOT Bedding likewise got mations – there were limited opportunities under the name Amscan) and Interline pushback on its pricing thresholds, do- for the market to soak up excess liquidity in Brands – which underwent sponsor-to- minion and fi xed-charge springs, although the absence of a meaningful M&A pipeline. sponsor buyouts. Each of these credits it ultimately secured competitive terms ABL, in particular, occasionally found came with relatively thin spreads. Interline including a pricing grid with spreads cuffed itself competing with bull market cash fl ow Brands secured pricing of LIB+175 on the at LIB+150-200. structures, thus facing additional obstacles. credit, and Party City saw slightly richer Most recently, an LBO fi nancing for David’s “Sponsors are pretty active,” said one spreads of LIB+200 with 25 percent draw Bridal raised eyebrows. The ABL credit, lender. “And there is a decent pipeline, down under the revolver. which has large over advance provisions, but there has been a shift to covenant-lite Although demand for these assets was comes in combination with a covenant-lite revolvers.” Although this type of bull market high, lenders were not indifferent to struc- term loan and high yield bond. At $125 phenomenon does not typically last, “it is a ture and pricing. million, the ABL tranche is relatively small negative driver for ABL right now.” “It feels like we are in a market where doing and did not require a true retail sell down, M&A volume for the fi rst nine months of something silly could be a key behavior,” thereby providing the platform for argu- 2012 totaled just over $4.5 billion (Fig. 3). Of said one lender. ably looser terms. Out of the box pricing this total, 60 percent represented fi nancing In early spring, anticipated fi nancing back- was LIB+150. that backed sponsored takeovers. The vast ing the buyout of Pep Boys Manny, Moe & For several lenders, this begs the question: If the market had to sell those deals down, INSIDE CROSS MARKET COMPS GRID would it be able to? And do these clubbed LOAN MARKET SCORECARD ........................................3 relationship deals effectively become the LT Sec’ Bond ANALYTIC SNAPSHOT ................................................... 5 Borrower Rating Loan LCDS Swap CDS standard or comparison for the next ABL LCDS, IGR MARKET BASED PRICING ............................7 Boyd Gaming B 444 454 737 896 RELATIVE VALUE ANALYSIS ..........................................8 Cablevision Systems Corp BB 135 154 375 335 credit? FORWARD CALENDAR ..................................................9 Clear Channel Communications Inc CCC+ 995 807 1603 1539 LEAGUE TABLE ..............................................................10 Community In the context of clubbed transactions DEALS..........................................................................11-16 Health Systems Inc B+ 221 275 528 448 THE WEEK IN NEWS ...........................................17-21, 24 Delta Air Lines Inc B 408 760 457 752 structured for sponsored credits, most lend- Dole Food B 366 243 629 210 ASIA NEWS ....................................................................22 Freescale Semiconductor Inc B 499 566 713 885 ers agree that specifi c deals have limited EUROPE NEWS .............................................................23 Harrah’s Entertainment Inc B- 406 687 1515 2115 HCA Inc B+ 324 270 408 427 relevance as a comparison for the next deal.