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Kinder Morgan wraps $1.5B high yield bond offering backing loan repayment

Kinder Morgan today completed a two-part offering of secured notes via active bookrunners Barclays, RBC, and Wells Fargo Securities and passive bookrunners UBS, Credit Suisse, J.P. Morgan, RBS, and Citi, according to sources. Demand for the deal led to a $500 million upsizing and pricing for the shorter paper came at the tight end of talk, while the longer tranche was at the wide end of talk. Note that there is par-call window one month prior to maturity for the 7.25-year tranche, and three months prior for the 10-year notes. Proceeds will be used to repay revolver borrowings. Kinder Morgan owns and operates energy transportation and storage assets in the U.S. and Canada. Terms:

Issuer Kinder Morgan Inc.
Ratings BB/Ba2
Amount $750 million
Issue secured notes (144A-life)
Coupon 5.00%
Price 100
Yield 5.00%
Spread T+306.1
FRN eq. L+293
Maturity Feb. 15, 2021
Call par call one month prior to maturity
Trade Oct. 31, 2013
Settle Nov. 5, 2013 (T+3)
Joint Bookrunners Barc/RBC/WF/Citi/CS/JPM/RBS/UBS
Co-leads
Co’s.
Px talk 5-5.125%
Notes subject to T+50 make-whole call; total upsizing $500 million.
Issuer Kinder Morgan Inc.
Ratings BB/Ba2
Amount $750 million
Issue secured notes (144A-life)
Coupon 5.625%
Price 100
Yield 5.625%
Spread T+307.3
FRN eq. L+293
Maturity Nov. 15, 2023
Call par call three months prior to maturity
Trade Oct. 31, 2013
Settle Nov. 5, 2013 (T+3)
Joint Bookrunners Barc/RBC/WF/Citi/CS/JPM/RBS/UBS
Co-leads
Co’s.
Px talk 5.5-5.625%
Notes subject to T+50 make-whole call.
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Europe: PIK-Toggle Issuance Hits €3B As High Yield Risk Appetite Ramps Up

PIK-toggle notes issuance has exploded this year, with year-to-date volume at €3.1 billion, which is greater than the €2.7 billion issued during 2006-2012 combined, according to LCD. The 2006-2012 volume includes both PIK-toggle notes and regular PIK transactions, whereas this year has only seen PIK-toggle notes.

 


This volume was generated from 11 PIK toggle notes in 2013, versus 10 for the 2006-2012 period (including both toggles and regular PIK notes).

 

 

On the upside
The surge in supply is largely due to the increased risk appetite in high-yield this year. The low-yield macro environment has meant money has flowed into high-yield funds at a great pace, with net inflows of €3.6 billion in the year to date, according to J.P. Morgan.

Fund managers are flush with cash and under pressure to buy assets, and there has been a distinct thawing in attitude towards a product that is regularly referred to as a “bull market trade”.

 

 

While fund managers are sourcing assets like never before, it has been the toggle feature that has won many over to the structure, as the deals have typically been structured to pay a cash coupon for the life of the bonds. Indeed, while investors have had their fingers burnt in the past by regular PIK notes – and some issuers have struggled under a debt pile made worse by an accruing PIK – it is the lure of a high cash-pay coupon that has made the toggle feature more palatable.

As can be seen from the table, the coupons on offer – other than Schaeffler – are all high, and significantly above the current three-month average primary yield of 7.8%. Those investors open to toggles consistently say they would prefer to be deeply subordinated in a company they like than achieve the same yield by being secured, but in a poor-performing company.

The toggle functionality is also seen as a plus, as some investors claim they would prefer a company they like to toggle to PIK and maintain the status quo than for the firm to miss a coupon payment, and subsequently risk aggressive debt holders – often hedge funds – taking control of the business.

Moreover, all the toggles other than Kloeckner’s are pay-if-you-can, meaning a cash-pay coupon will be delivered provided there is sufficient room in the restricted payments basket to finance the cash coupon (see table). Nearly all of this year’s deals have been structured such that a cash coupon is deemed highly likely for the life of the bonds – the exceptions being BefesaUnilabs, and Kloeckner, sources comment.

On the downside
Nevertheless, those that will not touch the structure say these deals are likely to underperform in a risk-off environment. There is, however, no clear consensus as to what would happen to the secondary price of a PIK-toggle bond should the notes toggle to PIK-pay, from cash-pay interest.

The oldest outstanding PIK-toggle bonds in Europe  are Ardagh’s 11.125% notes due 2018, issued in 2011, but Ardagh has yet to exercise the option to toggle to PIK-pay. The first 2013 PIK-toggle issuer to be able to toggle into PIK-pay is Sunrise Communications, which issued its PIK-toggle notes in March. Its first interest payment – guaranteed as cash-pay – was due on Sept. 15.

Some believe that once toggled to PIK – which may not be immediately apparent outside of a company filing, according to sources – the secondary price on the notes is likely to weaken, although this would depend on the reason for the toggle.

As listed in the table, most PIK-toggle bonds this year feature a pro forma minimum cash requirement of varying sizes, pro forma for the interest payment, above which it has to pay a cash coupon. Cash levels that go below these thresholds would represent an alarming drop in certain instances – Phones 4U, for example, reported £148 million of cash on its balance sheet, and this would have to drop to a measly £2.5 million on a pro forma basis before the company is permitted to toggle to PIK-pay. Indeed, were notes to switch to PIK-pay, it hints there may be pressures on its cash flows. This would make a weakening in the secondary price far more likely, even though the PIK structure is in some way fulfilling its purpose to conserve borrowers’ liquidity. “Ultimately, [PIK-toggle bonds] give the companies lots of flexibility,” one source said.

Another view on the likely secondary performance of these deals is that levels could be little changed in the event of the toggle to PIK being exercised, as the market could simply treat PIK-toggle bonds as pure PIK notes – especially once the guaranteed cash-pay period comes to an end. Except for Unilabs and Kloeckner Pentaplast, the first interest payment – and the first two for PTH and Schaeffler – is guaranteed to be cash-pay. “You don’t know if you will receive cash interest or PIK, so you assume the latter, and adjust if and when you receive cash interest,” a source said.

Out of the frying pan…
Lawyers say terms around the toggle feature have been largely unchanged, but the use of proceeds and type of issuer have certainly moved to the riskier end of the spectrum. Nevertheless, PIK-toggle notes are being used this year in a wider variety of situations than many would have anticipated.

 

Dividend recaps are often cited as an indicator of a hot market, and PIK-toggles have been particularly useful to sponsors looking to extract value from companies via a recap. The three most recent deals have all used proceeds to fund a dividend, while 51% of this year’s volume has been used for this purpose.

However, the structure has more strings to its bow than just financing a dividend. Refinancing has accounted for 41% of the volume, though the majority of this came from the largest PIK-toggle deal of the year – Schaeffler, at €800 million. Such was the demand for this robust German industrial company that it managed an eye-catchingly tight print of 6.875%. Demand was bolstered by a stringent list of requirements before it could toggle to PIK-pay, which all but guarantees it will be cash-pay debt.

Meanwhile, R&R Ice Cream highlighted that PIK toggles can also be used as acquisition financing. PAI opted to use the format as there was insufficient capacity under the restricted payment baskets of the borrower’s outstanding 2017 notes to allow for a suitably sized tap, according to sources. However, there was enough capacity to service a cash-pay coupon on a PIK-toggle deal, which in turn allowed PAI to raise enough debt to finance the buyout.

 

 

 

Another indication of the structure’s growth has been the geographic diversity of companies issuing toggles. This also highlights how risk appetite for the structure has grown as the year has progressed. The format was first used this year by Swiss telecom companies Sunrise and Orange Switzerland, but has since moved to Spanish commodity-related company Befesa. – Luke Millar/Sohko Fujimoto

For more on PIK toggle bonds in the US, please click here.

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OGX likely to file for Ch. 15 in US, following Brazilian bankruptcy

Brazilian oil company OGX Petroleos e Gas Participacoes will likely file for Chapter 15 protection in the U.S. soon, following its bankruptcy petition in Rio de Janeiro on Wednesday, says Miami-based Berger Singerman partner Christopher Jarvinen, a restructuring attorney with significant experience in Brazil.

(See “OGX files for bankruptcy protection in Rio de Janeiro,” LCD News, Oct. 30, 2013).

A Chapter 15 filing would halt potential OGX litigation in the U.S. and give deference to the restructuring proceedings in Brazil, which could last several years, Singerman says. Although a Chapter 15 will likely be filed with the U.S. Bankruptcy Court in Manhattan, it cannot be done until the Brazilian court enters an order officially permitting the Judicial Reorganization to proceed. For Chapter 15 purposes, a “foreign representative” must also be appointed to act on the Brazilian company’s behalf in the U.S.

Unlike Chapter 11, the section of the bankruptcy code under which companies in the U.S. typically restructure, Chapter 15 is designed for dealing with insolvency cases involving debtors and assets in more than one country. A Chapter 15 is run parallel to the restructuring in a debtors’ home country.

In practical terms, an OGX Chapter 15 would require the company to file with the U.S. court English translations of its most important Portuguese filings with the bankruptcy court in Rio de Janeiro. Unlike the U.S., where all bankruptcy court filings are published online, Brazilian courts do not make filings easily available to the public, Singerman says.

The majority of OGX bondholders are based outside of Brazil. A group of OGX bondholders hired law firm Cleary Gottlieb Steen & Hamilton this June, while Bingham McCutchen is working with bondholders of OGX affiliate OSX Brasil SA. OSX has not yet to file for bankruptcy, but its assets are closely linked to those of OGX. OGX has hired Lazard and The Blackstone Group for restructuring advice, while bondholders retained Rothschild Inc. as financial advisor for the restructuring. The company’s legal counsel in Brazil is Sergio Bermudes Advogados. – John Bringardner

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TXU/TCEH bonds gain, loans soften on report coupon payment likely

Bonds backing TXU/Texas Competitive Electric Holdings (TCEH) moved higher in active trade today, and term loans softened, after a report said the company planned to pay $270 million in bond coupons.

Among the bonds on the move, TCEH 10.25% notes due 2015 gained roughly three points, to trade at 5-5.25; EFIH first-lien 10% notes due December 2020 advanced to trade at 105.5, versus 104 before the report; and TCEH second-lien 15% exchange notes due 2021 increased three points, to trade at 29.5-30, sources said.

Senior lenders oppose the payment to junior creditors ahead of a widely expected restructuring of the company that will likely include a Chapter 11 filing.

TXU’s extended term loan due 2017 (L+450) and non-extended term loan due 2014 (L+350) eased to bracket 67, from about 67.5/68 yesterday before the report. The loans jumped to a 69/69.75 context on Friday after investors heard news of a favorable regulatory development.

Energy Future Holdings Corp. is set to pay interest of $270 million as talks between lenders continue, and avoid a bankruptcy filing, theWall Street Journal said today.

TXU has been working on a restructuring deal for the better part of this year. Both prepackaged and pre-arranged deals have been raised as part of a Chapter 11 filing.

Coupon payments are due on Nov. 1 for EFIH’s 11.25% PIK-toggle exchange notes due 2018, TCEH 10.25% notes, and buyout-related TCEH unsecured 10.5% PIK-toggle notes due 2016.

The term loans today relinquished part of gains after a report on Oct. 25 that the Texas Public Utility Commission (PUC) moved to generate a “mandatory reserve margin for electricity” in the face of potential power shortfalls, citing commentary from a three-member panel that had convened in Houston. However, there was no formal vote, according to the report. Bonds were largely unmoved, however. – Abby Latour/Kerry Kantin

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Capsugel outlines price talk on upsized PIK-toggle drive-by high yield deal

Capsugel has pitched, at 7-7.25% price guidance, a $465 million offering of 5.5-year (non-call one) senior PIK-toggle notes via bookrunners Goldman Sachs, UBS, KKR, Barclays, Credit Suisse, Deutsche Bank, and Macquarie, according to sources. The size of the deal represents an increase from $415 million at launch and it’s today’s business with books closing at 1:30 p.m. EDT and pricing to follow, the sources add.

Proceeds will be used to pay a dividend. Roughly 99.6% of Capsugel’s outstanding capital stock is held by funds managed by KKR. As of June 30, 2013, Capsugel held dividend capacity of $109.9 million under its senior facility and existing 9.875% notes due 2019, according to the offering memorandum.

Investors are being guided towards a B-/Caa1 profile for the PIK-toggle notes, according to sources. Take note that issuance is under Rule 144A for life, and the first call is at 102, followed by 101 and par in the following years.

In September, Capsugel was in the U.S. market for a $906 million covenant-lite TLB paying L+250 with a 1% LIBOR floor, due August 2018, via UBS. Proceeds from the add-on loan backed the drug-capsule manufacturer’s acquisition of Bend Research.

Prior to the bond announcement this morning, the borrower’s 9.875% notes due 2019 were pegged at either side of 112.125, yielding roughly 3.25%, according to S&P Capital IQ.

Capsugel makes hard capsules and drug-delivery systems. Capsugel Holdings is rated BB-/Ba3, while issuer ratings for the current bond issuer, Capsugel S.A., have been guided at B+/B2, according to the banks. – Sohko Fujimoto/Matt Fuller

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High Yield During Chillier Holidays: Levered Retail Credits Test After Issuance Feast

With the holiday season upon us, high-yield retailers face a test of how heavier debt loads can weather chillier consumer sentiment.

In October, retailers have placed six high-yield bond deals totaling $3 billion, the highest deal count in the sector for any single month since April 2011, and the second-largest amount by volume, according to data from LCD, a division of S&P Capital IQ. The highest monthly volume was in August 2007, at $3.8 billion. So far this year, there have been 23 deals totaling $10.1 billion, or 3.7% of total high-yield volume, on the back of even higher issuance last year, at 30 deals totaling $14.05 billion, or 4.1% of total issuance, according to LCD.

 

 

What’s more, issuers in the retail  sector have not shied away from the market’s limits of leverage levels, or issuer-friendly structures. On one recent high-profile retail deal for Neiman Marcus, total leverage will run 6.9x, or 7.1x on a lease-adjusted basis. That company also revisited the PIK-toggle bond, and used the contentious structure as part of  financing  at the operating-company level backing the company’s buyout by Ares Management  and Canada Pension Plan Investment Board, the first time a company has done so since the credit crisis.

 

 

In the year to date, the amount of bond deals in the retail sector used for dividends or stock repurchases totaled 21.4%, versus 7.4% for bond deals across all other sectors, according to LCD. J. Crew was one, issuing $500 million of six-year (non-call one) notes at par on Oct. 28, to pay a dividend to sponsors TPG Capital and Leonard Green & Partners.

 

 

Retail deals have also appeared in Europe. Douglas, owned by Advent, is in talks to buy French perfume retailer Nocibe from Charterhouse in a deal that will create France’s largest chain of perfumeries by number of shops. Perfume is one of Douglas’ five retail divisions, alongside Thalia bookshops, Christ jewellery stores, AppelrathCupper fashion, and Hussel confectioneries.

Retail transaction are underway in the middle market. CIT Capital [entity display=”Markets” type=”section” active=”true” key=”/markets” natural_id=”channel_2section_62″]Markets[/entity] and Garrison Investment Group provided $110 million in debt financing to Los Angeles-based Joe’s Jeans to back the $97.6 million acquisition of Hudson Clothing. The financing includes a $60 million, five-year term loan and an up to $50 million, five-year borrowing-based revolver.

Not all recent deals included [entity display=”bonds” type=”section” active=”false” key=”/bonds” natural_id=”channel_2section_8″]bonds[/entity]. Hudson’s Bay Company placed a $300 million second-lien, eight-year term loan at L+725, with a 1% LIBOR floor, to support the Toronto-based retailer’s $2.9 billion acquisition of Saks Incorporated. Financing also includes a $2 billion first-lien term loan, a $950 million asset-based revolver, and $1 billion of equity.

Leverage for Christmas
Historically, the high-yield retail sector has been riskier than the broader high-yield market. The average quarterly return is 2.07% for the retailing industry, and 1.92% for the BofA Merrill Lynch High Yield Master II Index, including data since 1997. However, risk is meaningfully higher, measured by standard deviation of returns: at 6.5% for retailing, versus 5.3% for the High Yield Master II Index.

Still, retail names have attracted private equity buyers.

“It’s a good period to see companies go private. They’re still producing strong free cash flow and have under-levered balance sheets. A period of choppy sales trends – that equity markets don’t like – may make them attractive targets for private equity firms,” said Liz Dunn, retail sector analyst at Macquarie.

“For the most part, healthy retailers can manage those debt loads unless they are a long-term loser of market share or have other flaws with their business model,” Dunn said.

At the same time, some iconic retail names are struggling. Rumors of a bankruptcy have pressured bonds backing J.C. Penney to lows. Bonds backing  Sears Holdings, which last month issued a $1 billion term loan to repay revolver debt, have moved lower on negative sales trends.

The outlook for the key Christmas season isn’t bright. This week, Standard & Poor’s announced that U.S. retail and restaurant ratings outlooks will be stable with a slight negative bias as consumers keep spending in check during the holiday season.

“Standard & Poor’s Ratings Services’ base-case outlook for the remainder of 2013 reflects our expectation that many U.S. retail and restaurant subsectors will face weak demand in the critical fourth-quarter shopping season of 2013 and consumers will direct their spending with some care,” Standard & Poor’s analyst Robert Schulz said in an Oct. 22 economic and ratings outlook.

“Elevated gas prices, unemployment, and rising interest rates are some of the reasons, even before taking the government shutdown and federal budget inertia into account, which may cause households to further delay spending.”

Even stronger retailers are feeling a pinch. Specialty-apparel retailer Gap, whose corporate credit rating was upgraded to BBB- in May due to improved operating performance, announced flat sales for September and described the business environment as “challenging.”

“The retail backdrop is tough right now, but an average retailer performing in line with its peers should be able to manage,” said Dunn at Macquarie.

Of course, not all retail companies are subject to the same trends. Specialty retailers and those relying on mall-based traffic are probably worse off those catering to higher-end shoppers.

Retail bonds in vogue
So far, scarcity in the high-yield secondary market for significant amounts of paper, and slim pickings in the primary market after a slowing of new issuance since record levels of September, has largely buoyed recent high-yield retail bonds. Downward pressure on high-yield retail bonds has been confined to credit-specific news.

For example, bonds and loans backing retail chain Sears Holdings edged lower after the company posted declining sales and negative EBITDA for the third quarter and unveiled plans to explore a spin-off to shareholders of its Lands’ End and Sears Auto Center businesses.

Sears 6.625% notes due 2018 traded down one point, to 93.25, in low volume after the Oct. 29 news. Sears placed $1 billion of secured bullet notes, 6.625% notes due 2018, at par in September 2010. In the loan market, the Sears term loan due 2018 (L+450, 1% LIBOR floor) was bid at 100.25, off a quarter of a point from before the news, sources said. The company’s $1 billion term loan was issued a month ago at 99.

J.C. Penney bonds slid last week, in part on bankruptcy rumors. The company’s 5.65% notes due 2020 fell to 65.5 last week, and 6.375% bonds due 2036 declined to 61, record lows. J.C. Penney term debt due 2018 (L+500, 1% LIBOR floor), a $2.25 billion covenant-lite loan issued at 99.5 in May, edged down to 96.125/96.625.

“Sears needs to be run by a merchandiser, not a hedge fund investor. What I see happening is a slow liquidation of the company,” said Evan Mann, Gimme Credit analyst. “J.C. Penney has its own set of self-inflicted issues. Both are in different situations, facing a retail environment that’s getting a little sluggish.”

“For retailers that are struggling, you need a Christmas that’s a little better than in the previous year.”

Even a strong holiday season may not be enough to salvage specialty-clothing retailer Rue 21. Sector trends weakened from May when Apax unveiled a $1.1 billion buyout of Rue 21, saying it would buy the company for $42 per share. Standard & Poor’s rated the company’s $250 million of senior notes at CCC, and forecast leverage at the mid-8x area for the retailer, which focuses on middle-market communities.

Bookrunners Bank of America, J.P. Morgan, and Goldman Sachs were forced to off-load Rue 21’s entire $250 million of 9% notes due 2021 at 73, yielding 14.9% (T+1,272) last week, according to sources. Bonds have since been offered for sale in the high 60s, sources said. –Abby Latour

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Europe: AA Group PIK toggle notes price at par to yield 9.5% cash

AA Group today priced its £350 million offering of six-year (non-call 1.5) senior PIK toggle notes in line with price talk via global coordinators Deutsche Bank (B&D) and RBS, alongside bookrunners Barclays and Mizuho. The choice to issue PIK toggle bonds was due to a cash-pay debt incurrence restriction at the class B WBS level, sources said. The first three and the last interest payments will all be paid in cash. The notes will toggle to PIK if the average daily cash balance between the 45th and 15th day prior to the coupon payment date is less than £50 million pro forma the cash coupon payment, according to the bond documents. Proceeds will be used to partially repay debt under the Acromas Mid Co senior facility – at £284.4 million, according to the offering memorandum – and to pre-fund cash interest payments for the first three interest periods. Pro forma net leverage is 8.1x through the PIK, as the PIKs add 0.9x to the 7.3x net whole business securitisation leverage, as of July 31, 2013, according to the offering memorandum. AA is a U.K. breakdown-services firm. Terms:

Issuer AA PIK Co (AA Group)
Ratings Unrated
Amount £350 million
Issue Senior PIK toggle notes
Coupon 9.5% cash/10.25% PIK
Price 100
Yield 9.5% cash
Spread G+786
Floating eq. E+766
Maturity Nov. 7, 2019
Call nc1.5
Trade Oct. 31, 2013
Settle Nov. 7, 2013 (T+5)
Global coord. DB (B&D), RBS
Books Barc, Miz
Px talk 9.5% at par
Notes Call schedule: June 15, 2015 @102; June 15, 2016 @101; June 15, 2017 @par
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First Data add-on bonds (CCC+/Caa2) price at par to yield 11.75%

First Data this afternoon completed an add-on offering of 11.75% subordinated notes due 2021 via lead bookrunners Bank of America, Citi, and Deutsche Bank, with joint bookrunners Barclays, Credit Suisse, Goldman Sachs, HSBC, Wells Fargo, and KKR Capital Markets, according to sources. Terms were inked at the lower end of talk, though after a double-upsizing, to $1 billion, thus boosting the fungible series outstanding to $1.75 billion. First Data returns to market after six months for capital to address its 2008 vintage, buyout-related 11.25% subordinated notes due 2016. The CCC+/Caa2 paper is currently callable at par, and there’s $1.75 billion left outstanding in what was originally $2.5 billion on account of prior exchanges and other paydowns. Terms:

Issuer First Data
Ratings CCC+/Caa2
Amount $1 billion
Issue add-on subordinated notes (144A)
Coupon 11.75%
Price 100
Yield 11.75%
Spread T+962
FRN eq. L+943
Maturity Aug. 15, 2021
Call nc2.5 @ par +75% of coupon (originally nc3)
Trade Oct. 30, 2013
Settle Nov. 19, 2013 (t+13)
Joint Physical Books BAML/CITI/DB
Joint Bookrunners Barc/CS/GS/HSBC/WF/KKR
Px talk 100-100.25
Notes w/ 2.5-year equity clawback for 35% @ 111.75; carries T+50 make-whole call; w/ change of control put @ 101; upsized by $500 million; total now $1.75 billion; original $750 million priced in May 2013 @par
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Complexity extremity: LightSquared Ch 11 judge – Harbinger can’t go solo in Dish/Ergen/fraudulent debt suit

The bankruptcy judge overseeing LightSquared’s Chapter 11 proceedings said Tuesday the company’s owner, Harbinger Capital Partners, may not proceed on its own in a lawsuit accusing Dish Network Corp. founder Charles Ergen and related entities of fraudulent debt purchases.

 

U.S. Bankruptcy Judge Shelley Chapman also dismissed portions of the Harbinger suit naming Dish and Sound Point Capital Management, the hedge fund affiliated with Ergen’s SP Special Opportunities LLP, according to the Daily Bankruptcy Review. Chapman said Harbinger could remain a party to the suit against Ergen, but only if LightSquared itself pursues the claims.

 

Although Harbinger holds the vast majority of LightSquared equity, its control has slowly eroded during the bankruptcy case as the likelihood of an equity recovery recedes. Since the expiration of LightSquared’s exclusive right to file and solicit votes on a reorganization plan this July, Chapman has repeatedly emphasized that what might be in the best interest of Harbinger is no longer necessarily in the best interest of LightSquared. Lawyers for Ergen have accused Harbinger of doing everything it can to retain control in the case, including waiting in vain for a favorable F.C.C. ruling that would greatly increase the company’s value.

 

Philip Falcone’s Harbinger filed the suit against Ergen on Aug. 6, reiterating many of the accusations Harbinger has made in bankruptcy court proceedings. The suit claims Ergen fraudulently infiltrated the senior-most tranche of LightSquared’s capital structure, secretly amassing more than $1 billion of secured debt in spite of a credit agreement explicitly designed to protect LightSquared and Harbinger from interference by competitors like Dish and EchoStar. Over the course of a year, an Ergen investment vehicle known as Sound Point made its purchases, “often at significant discounts to par,” eventually becoming LightSquared’s largest creditor, Harbinger said.

 

“By the time Sound Point’s true identity was revealed, it had already contracted to purchase enough loan debt to severely impair Harbinger’s rights in LightSquared’s bankruptcy proceeding, and thereby to block Harbinger’s efforts to negotiate a consensual plan of reorganization,” according to the suit. Harbinger has asked the court to nullify Ergen’s purchases and is seeking more than $4 billion in damages.

 

LightSquared filed a motion to intervene in the suit in late August, but only to the extent that the company wants a final decision on whether Sound Point legitimately purchased its debt.

 

“Although these claims have been asserted by plaintiffs and may be joined by other intervenors, LightSquared, as the borrower and guarantors under the credit agreement at issue, intervenes to ensure that these claims are fully and efficiently resolved,” wrote LightSquared lawyer Matthew Barr, a partner at Milbank, Tweed, Hadley & McCloy.

 

“In addition, other stakeholders in the Chapter 11 cases have requested that LightSquared intervene in this adversary proceeding to protect the estates’ interests in claims that they have communicated to LightSquared are property of the estates. LightSquared also intervenes to the extent that any other claim or cause of action against the Sound Point defendants raises the issue of whether the Sound Point Defendants’ purchase of LightSquared’s debt was in compliance with the credit agreement. LightSquared reserves the right to seek any appropriate remedy following resolution of the requested declaratory relief.”

 

LightSquared is scheduled to hold an auction of its assets on Nov. 25, at which Dish is currently the only major bidder. Ergen’s company has offered $2.22 billion for LightSquared’s spectrum assets.

 

Separately, Dish Network shareholders have filed lawsuits in Colorado and Nevada challenging Ergen’s purchase of LightSquared debt. Whereas the shareholders allege Ergen will unfairly benefit from his purchase, instead of Dish shareholders, Harbinger argues that Dish was forbidden from purchasing LightSquared debt, and that Ergen secretly made his purchases on the company’s behalf.

 

“In effect, they cancel each other out,” Rachel Strickland, a lawyer for Ergen entity L-Band Acquisition Corp. said at a hearing earlier this month. “Both sides are unhappy because they allege the opposite thing occurred.” – John Bringardner

 

 

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Navios bonds price tight to talk, at par to yield 8.125%

Navios Maritime Acquisition this afternoon completed an offering of first-priority ship mortgage notes under Rule 144A for life via bookrunners Morgan Stanley, J.P. Morgan, and Deutsche Bank, sources said. Terms on the B/B3 deal were inked tight to talk following a $10 million upsizing, and an early read from the gray market points to about a one-point gain on the break, the sources add. Proceeds will be used to finance a tender offer and consent solicitation for any or all of the company’s $505 million issue of 8.625% notes due 2017, to redeem any paper not purchased in the tender offer, to fund the repayment of outstanding borrowings under a term loan secured by two mortgaged vessels, and for general corporate purposes, according to the preliminary offering memorandum. Terms:

Issuer Navios Maritime Acquisition
Ratings B/B3
Amount $610 million
Issue first-priority ship mortgage notes (144A life)
Coupon 8.125%
Price 100
Yield 8.125%
Spread T+596
FRN eq. L+577
Maturity Nov. 15, 2021
Call nc3 @ par+75% coupon
Trade Oct. 29, 2013
Re-offer Trade Nov. 13, 2013 (t+10)
Joint Books MS/JPM/DB
Co’s. S. Goldman, DVB, RS Platou, ABN, CAG
Px talk 8.25% area
Notes upsized by $10 million; first call par+75% coupon.