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Bond prices decline nearly 1% amid Greek turmoil

The average bid of LCD’s flow-name high-yield bonds fell 94 bps in today’s reading, to 99.78% of par, yielding 6.80%, from 100.72% of par, yielding 6.58%, on June 25. Of the 15 constituents, 13 were decliners and two were unchanged.

Today’s negative reading joins Thursday’s 35 bps drop, for a week-over-week decline of 129 bps. Looking back two weeks the decline is just seven basis points as it includes two positive readings, although going back four weeks, the decline is 236 bps, incorporating two large declines in early June. Rising underlying U.S. Treasury rates were at hand then, while today’s reading represents yesterday’s broad market sell-off tied to the situation in Greece, although traders report an improved tone today.

Today’s decline is the fifth negative reading out of nine in June, but the average is still positive 408 bps in the year to date.

Recall that prior to sample revisions at the start of the year, the average had plunged to a three-year low of 93.33 on Dec. 16. However, with a snap-back rally that followed, the average closed the year at 96.4, for a total loss of 536 bps in 2014.

With today’s decline in the average bid price, the average yield to worst advanced 22 bps, to 6.80%, and the average option-adjusted spread to worst widened 28 bps, to T+517. As for a week-over-week reading, the averages are respectively up 29 bps and 33 bps.

Today’s reading in the flow names is a bit wider than the broad index yield but in line with spread. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed yesterday, June 29, with a 6.45% yield to worst and an option-adjusted spread to worst of T+514.

For further reference, take note that a June 24, 2014 reading of 106.98 – close to the February 2014 market peak of 107.03 – had the flow-name bond average yield at 5.02%, an all-time low, but spreads weren’t quite there. Indeed, the average yield was 7.63% at the prior-cycle peak in 2007, and the average spread at the time was T+290.

Bonds vs. loans
The average bid of LCD’s flow-name loans dropped 23 bps in today’s reading, to 99.45% of par, for a discounted loan yield of 4.12%. The gap between the bond yield and discounted loan yield to maturity stands at 268 bps. – Staff reports

The data:

  • Bids fall: The average bid of the 15 flow names declined 94 bps, to 99.78.
  • Yields rise: The average yield to worst advanced 22 bps, to 6.80%.
  • Spreads widen: The average spread to U.S. Treasuries gained 28 bps, to T+517.
  • Gainers: There were no gainers in the latest reading
  • Decliners: Of the 13 decliners, California Resources 6% notes due 2024 led with a 4.25 point drop, to 86.25.
  • Unchanged: Two of the constituents were unchanged.
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SS&C Technologies places 8-year notes at par to yield 5.875%; terms

SS&C Technologies this afternoon completed its offering of senior notes via joint bookrunners Morgan Stanley, Deutsche Bank, and Bank of America Merrill Lynch. Co-managers include Barclays, Credit Suisse, and Jefferies. Terms were finalized at the midpoint of talk, along with a $100 million upsizing. Proceeds will be used to partially fund SS&C’s $2.7 billion acquisition of Advent Software and to refinance the loans outstanding under SS&C and Advent’s existing credit agreements. Commitments on the concurrent loan were accelerated to today at 1:30 p.m. EDT. SS&C is a global provider of financial-services software and software-enabled services that trades on the Nasdaq under the symbol SSNC, with an approximate market capitalization of $5.7 billion. Trailing-12-month net sales of approximately $788 million turned out about $296 million in EBITDA, according to S&P Capital IQ. Terms:

Issuer SS&C Technologies Holdings
Ratings B+/B3
Amount $600 million
Issue senior (144A)
Coupon 5.875%
Price 100
Yield 5.875%
Spread T+365
Maturity July 15, 2023
Call nc-3 @ par + 75% coupon
Trade June 29, 2015
Settle July 8, 2015 (T+6)
Bookrunners MS/DB/BAML
Co-Managers Barc/CS/Jefferies
Price talk 5.75-6%
Notes Upsized by $100 million. First call at par plus 75% coupon.
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U.S. high yield bonds weaker as Greece weighs on broad markets

The U.S. high-yield bond market is weaker this morning on limited liquidity and low trading volume as a breakdown in talks between Greece and its creditors has sparked the increasing probability of default. More bid-wanted lists are making the rounds, while the high-yield cash market is down about a half to one point, sources indicate.

Top trading names this morning include European auto-parts supplier ZF Friedrichshafen, with its 4.75% notes due 2025 notes dropping half a point, to 97, trade data show. The $1.5 billion issue was placed in late April at 99.02, as part of the company’s acquisition of TRW Holding.

Recently priced secured energy issues are off a point or more this morning as crude-oil prices edge lower in reaction to the situation in Europe. SandRidge Energy 8.75% notes due 2020 are down a point, to 89.5. As well, Halcon Resources 8.625% notes due 2020 have slipped another point today, to 97.5, after falling more than two points last week, trade data show.

The Chemours Company 6.625% notes due 2023 are also active and lower, falling a point, to 96.75. The issue priced at par in May as part of a three-part offering.

The CDX HY opened down one point this morning but recovered some of that, and is now off three-eighths of a point, at 106.40/106.52.

In the primary market, SS&C Technologies came out with price guidance this morning, and StandardAero is targeting pricing for tomorrow, sources indicate. Full calendar details are available online to subscribers at LCD U.S. HY Forward Calendar. –Joy Ferguson

 

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BDCs head to Washington to make case to modernize rules

In 2013, Rep. Mick Mulvaney (R-SC) toured the factory of Ajax Rolled Ring and Machine which manufactures steel rings used in construction equipment and power turbines.

The factory, which is located in York, S.C., now employs about 100 people. It has since been acquired by FOMAS Group.

But at the time of Mulvaney’s tour, Ajax was controlled by Prospect Capital, a business development company, or a BDC. Propsect Capital’s investment from April 2008 included a $22 million loan and $11.5 million of subordinated term debt.

Mulvaney said he had never heard of a BDC before that day at Ajax, nor realized how important BDCs were as an investment source in his district.

That has changed. Bringing laws for BDCs up-to-date has since become a key issue for Mulvaney, who is on the House Committee on Financial Services. He has proposed a draft bill to modernize the laws governing BDCs.

As a former small business owner himself, Mulvaney believes allowing BDCs to grow more easily, a key component of his proposed legislation, will provide much-needed financing to the mid-sized companies to which banks have cut lending since the credit crisis.

“BDCs fill a niche for companies too big to access their local banks, but too small to access public debt and equity markets. I am acutely aware of the importance of having capital for growth when you are running a company,” Mulvaney said.

Last week, the modernization of the laws governing BDCs was the subject of a hearing by the House Subcommittee on Capital Markets and Government Sponsored Enterprises. The hearing brought together titans of the BDC industry.

“The BDC industry is maturing, and growing in a meaningful way. They are beginning to realize they need to come together as a regulated industry and speak with a common voice,” said Brett Palmer, President of the Small Business Investor Alliance (SBIA).

“They are incredibly competitive, which is one of the challenges of getting them all in the same regulatory boat, rowing in the same direction.”

The timing of Prospect Capital’s purchase of Ajax Rolled Ring in April 2008 was not fortuitous. The company was heavily reliant on Caterpillar, which accounted for roughly 50% of revenue, and the global financial crisis took a heavy toll on Ajax in 2009 and 2010.

Still, Prospect Capital increased its investment in Ajax during those tough years. That investment allowed Ajax to build a machine shop, and thus deliver a more finished product to its customers. Last year, when Italy-based FOMAS unveiled an offer for Ajax in a bid to expand in the U.S. market, Ajax was a much stronger business with revenue diversified away from Caterpillar, according to Prospect Capital.

Rep. Mulvaney is hoping a bill could be ready at the end of July, and that it could be on the floor for debate by fall. The new draft of the bill addresses concerns raised over a prior proposal to reform BDC rules.

One size does not fit all
The SBIA estimated the number of active BDCs exceeds 80, and the size of the rapidly growing industry has surpassed $70 billion. “What’s a priority for one BDC is not necessarily a priority for another,” SBIA’s Palmer said.

Even with differences across the industry, possibly the most important potential change for BDCs is the asset coverage requirement. The change would effectively raise the leverage limit to a 2:1 debt-to-equity ratio, from the current 1:1 limit.

BDC managers argue that even with the change, leverage of BDCs would be conservative compared to other lenders, which can reach a level of 15:1, for banks, and even higher, to the low-20x, for hedge funds.

“It should allow BDCs to invest in lower-yielding, lower-risk assets that don’t currently fit their economic model,” Ares Capital Board Co-Chairman Michael Arougheti told the hearing. “In fact, the current asset coverage test actually forces BDCs to invest in riskier, higher-yielding securities in order to meet the dividend requirements of their shareholders.”

BDC managers say that BDCs are far more transparent than banks traditionally have been. After all, BDCs regularly publish their loans, as well as the loans’ interest rates and fair values, in quarterly disclosures with the Securities and Exchange Commission.

“We believe it would be good public policy to increase the lending capacity of BDCs, and promote the more heavily regulated, and more transparent, BDC model,” said Mike Gerber, an executive vice president at Franklin Square Capital Partners.

To garner support for the leverage change, the bill may require BDCs to give as much as a year’s notice for any increase, allowing shareholders to sell holdings before any change comes into effect, if they don’t approve.

However, the idea of “increasing leverage” has suffered a tarnished image with the public since the credit bubble and resulting global financial crisis. BDCs are popular with retail investors because of their high dividends.

Testimony of Professor J. Robert Brown, who was a Democratic witness at the June 16 hearing on BDC laws, could help repair this image problem, supporters of the change say. Brown said reducing the asset coverage for senior securities was an “appropriate” move toward giving BDCs more fundraising capacity.

“Such a change will potentially increase the risks associated with a BDC. Nonetheless, this is one area where adequate disclosure to investors appears to be a reasonable method of addressing the concern,” Brown’s published testimony said.

“In addition, the draft legislative proposal provides investors with an opportunity to exit the company before the new limits become applicable.”

Save paper
Another change under discussion is the definition of  “eligible portfolio company,” which dictates what type of companies BDCs can invest in.

BDCs were designed to furnish small developing and financially troubled businesses with capital. Existing rules dictate that BDCs invest at least 70% of total assets into “eligible portfolio companies,” leaving out many financial companies.

Some argue that the economy has changed since this BDC rule was put in place, moving away from traditional manufacturing companies.

“Changing the definition of eligible portfolio company to permit increased investment in financial firms may result in a reduction in the funds available to operating companies. It may also result in an increase in the cost of funds to operating companies,” Brown said in his published testimony.

Less controversial in a potential BDC modernization bill appears to be the desire to ease regulatory burdens for BDCs.

Main Street Capital CEO Vincent Foster drew attention to the SEC filing requirements born by even the smallest BDCs. He called for reform to the offering and registration rules, such as allowing BDCs to use “incorporation by reference” that would allow them to cite previous filings instead of repeating information in a new SEC filing. He said the change would not diminish investor protections.

By way of example, Foster held up a stack of papers at the hearing on the BDC bill, about four inches thick, that was needed by Main Street to issue $1.5 billion in stock. He then held up a stack of papers, less than one inch thick, needed by CIT, not a BDC, to allow for a $50 billion equity issuance.

“Do four more inches of paper protect better than a half an inch? Hundreds of pages represent wasted money and manpower,” Foster said.

“This discussion draft would fix this absurdity and make a host of clearly-needed reforms.” – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.

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Bankruptcy: Colt Defense settles DIP loan spat, leaving Sciens on outside looking in

colt defenseColt Defense and an ad hoc consortium holding some 61% of the company’s 8.75% senior notes have resolved their battle over interim approval of a DIP facility for the company, helped along by the consortium’s purchase of the roughly $35 million of Colt’s prepetition senior debt held by Marblegate, which had been one of the lenders under the challenged DIP facility.

As a result of that transaction, attorneys told Wilmington, Del., Bankruptcy Court Judge Laurie Silverstein at a hearing late yesterday afternoon, the consortium will replace Marblegate and join with Morgan Stanley as a lender under a new DIP facility for the company.

Silverstein approved the new DIP on an interim basis.

According to court filings, the amount of the DIP will now be in the increased amount of $75 million, but $55 million of that would be used to roll-up prepetition debt, so the amount of new money provided by the DIP to the company would remain at $20 million, the same as the earlier-proposed facility.

As with the prior proposal, the DIP is split into a senior DIP facility and a term DIP facility, with the ad hoc noteholder consortium replacing Marblegate as the lender under the senior portion of the facility, albeit in the larger amount of $41.7 million.

Morgan Stanley will continue to be the lender for the term portion of the DIP, which would also be in an increased amount compared to the initial DIP, namely $33.3 million.

The full amount of the prepetition senior debt now held by the noteholder consortium, about $35 million, would be rolled up by the facility, as would $20 million of the prepetition term debt, with roughly $72.9 million outstanding, that is held by Morgan Stanley.

With respect to the interim approval granted yesterday by the bankruptcy court, the draw on the DIP will be $10 million, and will not include any roll-up amounts, which would only be paid following final approval. A final hearing was scheduled for July 10.

Interest under the senior portion of the facility would be at 11%, payable, at the company’s option, 9% in cash and 2% in kind, while interest under the term portion would be at 12.5% in cash.

The revised DIP does not contain any milestone deadlines with respect to an asset sale process, although it does require the filing of a reorganization plan by Aug. 31, approval of a disclosure statement by Oct. 15, a plan confirmation hearing by Nov. 23, and plan confirmation by Nov. 30.

That said, the company’s attorney, John Rapisardi of O’Melveny & Myers, said that a hearing to approve procedures for a Section 363 sale remains scheduled for July 14, but he acknowledged that the prospects for an asset sale (versus a standalone reorganization) are now a bit murkier.

That’s because the revised DIP financing left the company’s equity sponsor and stalking-horse bidder for the asset sale, Sciens Capital Management, as the odd man out.

Sciens was not, as they say, amused.

As reported, under the stalking-horse deal, Sciens had agreed to assume the company’s prepetition term debt (both the senior and the term loans) and the previously contemplated $20 million DIP facility – a total consideration of about $133 million – in exchange for the company’s assets. The deal would have, in effect, eliminated the company’s unsecured noteholders and left Sciens with ownership of the company’s assets.

Sciens had touted the deal as a backstop to an uncertain and contentious Chapter 11 that could potentially spook and drive away the company’s military customers, and cited its own history of 21 years of ownership of the company and expertise in the arms industry as keys to the company surviving as a going concern.

“The stalking horse bid is gone,” Sciens’ attorney, Mark McDermott of Skadden Arps, said at the hearing, noting that a large portion of the debt Sciens had agreed to assume as a purchase price no longer existed.

McDermott was clearly unhappy about the new DIP, noting several times that it would give noteholders the upper hand in winning ownership of the reorganized company. McDermott said Sciens was prepared to challenge the facility and had “discussed bringing a stop” to the DIP approval process “right now.” In the end, however, McDermott said Sciens would not seek to harm the company’s prospects at this point by launching a battle over the financing, and would respect the decision of the company’s independent directors who, McDermott said, “had no choice” but to back the financing, although he was clear that Sciens was reserving its right to object in the future.

McDermott arguably had little choice but to take that position. After all, he had argued in a court filing of his own yesterday – one defending the initial DIP facility against an alternative and arguably superior DIP proposal from the consortium – that the independent directors designated by the company to oversee the reorganization process were evidence of the fairness of the reorganization and Section 363 asset sale process being pursued by the company.

Still, McDermott told the court ominously, “We are now in a free fall Chapter 11,” adding that the U.S. military, as well as the governments of allied nations – Colt’s key customers – were watching the case.

Rapisardi, however, said he “took exception” to that characterization of the case, a point on which Silverstein agreed.

“Mr. McDermott said the world is watching,” Silverstein said, “We should be careful with our words.”

As reported, the battle over the DIP was, in effect, a proxy war, the first court skirmish in the battle of whether ownership of the reorganized company would fall to the noteholders or to Sciens.

Prior to the hearing on interim approval of the $20 million DIP facility last week, the ad hoc consortium of noteholders, representing about $153.3 million, or 61.34% of the company’s 8.75% senior notes outstanding, asked the bankruptcy court to deny approval of the proposed DIP, saying it was willing to provide the company with a $55 million DIP that is “economically far superior to that proposed by the debtors.”

The company rejected the ad hoc group’s offer.

But faced with potentially better financing, balanced against the company’s immediate need for cash to pay certain bills, including payroll, certain critical vendors, and attorneys’ fees, Silverstein approved the company’s immediate access to $6 million of the DIP and set a more extensive hearing for Monday to hash out the dispute. That hearing was subsequently delayed by two days, until yesterday. – Alan Zimmerman

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Hi grade: Heinz launches $10B offering to back merger with Kraft

After dropping two floating-rate tranches from today’s proposed deal structure, H.J. Heinz has launched a $10 billion, seven-tranche offering at the firm end of guidance, as it gears up for its merger with Kraft Foods Group, sources said. The deal includes $1 billion of two-year notes at T+95; $1.5 billion of three-year notes at T+100; $1.5 billion of five-year notes at T+105; a $1 billion, seven-year issue at T+140; a $2 billion, 10-year tranche at T+155; $1 billion of 20-year notes at T+185; and $2 billion long bonds at T+200.

Talk implies reoffer yields of roughly 1.65%, 2.06%, 2.85%, 3.53%, 3.94%, 5.03%, and 5.18%, respectively.

Guidance levels were in the T+100, T+105, T+120, T+145, T+160, T+190, and T+205 areas, plus or minus five basis points. Initial whispers started in the areas of T+110 for the 2017 notes, T+120 for the 2018 notes, T+140 for the 2020 notes, T+165, for the 2025 notes, T+210 for the 2035 bonds, and T+225 for the 2045 bonds.

The company dropped previously proposed two- and three-year FRN tranches.

The offering is the eighth so far this year totaling $10 billion or more, all of which backed either M&A plays or share repurchases, including deals for Actavis ($21 billion), AT&T ($17.5 billion), AbbVie ($16.7 billion), Microsoft ($10.75 billion),Shell International Finance ($10 billion), Oracle ($10 billion), and Qualcomm ($10 billion).

Last year, only Apple ($12 billion) and Oracle ($10 billion) met that threshold over the first half of 2014, and there were only three offerings of $10 billion or more over all of 2014, including a $17 billion, M&A-driven deal for Medtronic in December, LCD data show.

Earlier today, Moody’s assigned a provisional, investment-grade rating of Baa3 to the roughly $12 billion of senior unsecured notes and $4.6 billion of senior unsecured credit facilities associated with today’s offering. The final rating assignment will correspond with closing of the merger, which is expected shortly after a Kraft shareholder vote scheduled for July 1.

Moody’s currently holds a Ba3 rating on Heinz, which is currently under review. Today’s Baa3 rating reflects the “anticipation that the combined entity will have a significantly stronger credit profile than Heinz pre-merger. Additionally, the rating reflects Moody’s confidence that the senior management team of Kraft-Heinz, to be led by 3G Capital, will achieve the targeted $1.5 billion in run-rate cost savings, significant working capital reductions, and $2 billion of debt repayment in the first two years after the merger. Moody’s also expects that Kraft Heinz will achieve an additional $450 million to $500 million in annualized cash savings next year by calling the $8 billion of Heinz parent 9% company preferred stock issued in connection with the 2013 Heinz LBO. The preferred stock is callable beginning in June 2016,” analysts said.

“Kraft shareholders will receive one share of Kraft-Heinz stock for each Kraft common share plus a cash payment of $16.50 per share (approximately $10 billion in total), to be funded by a cash common equity contribution from Heinz shareholders 3G Capital and Berkshire Hathaway. Upon closing, which the company expects to occur in July, Kraft shareholders will own 49% and Heinz shareholders will own 51% of Kraft-Heinz, which will continue as a publicly traded company,” Moody’s added.

According to an S&P report on June 16 last week, Heinz’s proposed $15.6 billion debt financing will include $11 billion of senior unsecured notes denominated in U.S. dollars, euros, and pounds; a $4 billion senior unsecured revolver due 2020; and a $600 million term loan due 2022, according to the report. Kraft Canada’s proposed debt, meanwhile, will include C$500 million of senior unsecured fixed-rate notes due 2020.

S&P last week assigned an issue rating of BBB- to Heinz and Kraft Canada’s proposed debt and said it expects to assign a BBB- corporate credit rating to the combined Kraft Heinz Co. following the close of the transaction. Moody’s is also expected to peg the unsecured debt at a commensurate Baa3 level.

Heinz paper is still a few steps down in the speculative-grade space, with BB/B1/BB ratings. That includes the $3.1 billion of 4.25% second-lien notes due 2020, which were called at the current redemption premium of 102.125, and the $2 billion of 4.875% second-lien notes due 2025. The latter was sold earlier this year, at par, and isn’t callable for five years, but it’s already trading near a standard T+50 make-whole valuation, which is up around 110; recent trades were at 109, data show.

Proceeds from today’s proposed debt financing will be used to refinance Heinz’s $6.4 billion B institutional term loan due 2020, redeem $3.1 billion of Heinz’s 4.25% second-lien senior secured notes due 2020 and $800 million of its 4.875% second-lien senior secured notes due 2025, and redeem Kraft’s recent $1.4 billion June 2015 maturities that were repaid with its revolver.

Heinz’s institutional term loan and 4.25% notes date back to the $28 billion LBO of Heinz by 3G Capital and Berkshire Hathaway in 2013.

Consideration to Kraft shareholders, which will hold a 49% stake in the combined company versus 51% to Heinz shareholders, includes stock in the combined company and a $16.50-per-share special dividend amounting to roughly $10 billion, or 27% of Kraft’s closing price yesterday. The dividend will be funded by an equity contribution by Berkshire Hathaway and 3G Capital.

Active bookrunners for today’s BBB-/Baa3 blockbuster deal are Barclays, Citigroup, J.P. Morgan, and Wells Fargo. – Staff reports

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StandardAero announces $485M bond offering to back Veritas LBO

StandardAero has announced a $485 million, eight-year (non-call three) offering of senior notes via bookrunners Jefferies (B&D), KKR, and MCS Capital Markets. A roadshow will run through June 29, for pricing thereafter.

Proceeds will finance the purchase of StandardAero by Veritas Capital from Dubai Aerospace Enterprise.

Ratings are CCC/Caa2, according to the banks, and the bonds do not come with registration rights.

Founded in 1911, StandardAero is an independent provider of aircraft engine MRO services. It provides a global service network of 13 primary facilities in the U.S., Canada, Europe, Singapore, and Australia. – Luke Millar

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Bankruptcy: Amid more objections to Blackhawk deal, Patriot eases some bid terms

Patriot Coal has amended the bidding procedures for the sale of its assets to, among other things, extend the timeline for the bidding process, reduce the bid protections for stalking-horse bidder Blackhawk Mining, and ease the overbid requirements of the bidding process.

Saying it was “sympathetic” to many of the “host of objections” it has received to the proposed bidding procedures and the Blackhawk deal, the company said in a response filed today with the bankruptcy court in Richmond, Va., that it used those objections to press Blackhawk for additional concessions, adding that its efforts “have yielded 17 additional days to solicit bids, a 35% reduction in the breakup fee (from $19 million to $12 million), lower cash deposit requirements for third party bidders, an 80% reduction in the overbid requirement (from $5 million to $1 million), and the agreement to consult with the [unsecured creditors’] committee and other key creditors on various issues related to the bidding procedures, including whether a qualified bid has been submitted.”

The company added it would continue to negotiate for further concessions with parties in interest, including Blackhawk, up until the hearing.

The new timeline for the bidding procedures calls for a bid deadline of Aug. 24 (versus Aug.7, previously), an auction on Aug. 28 (versus Aug. 11, previously), a hearing to designate a winning bidder on Aug. 31 (versus Aug. 14, previously), and a hearing on sale approval and plan confirmation on Sept. 18 (versus Sept. 11, previously).

The company said it projects that it will have “dangerously low cash by October 2015,” and that it “cannot tolerate” a lengthier sale process.

A hearing on approval of the procedures is set for June 23.

As reported, last week both the United Mine Workers of America and the U.S. Trustee for the Bankruptcy Court filed objections to the bid procedures, citing, among other things, that the procedures narrow time-frames and Blackhawk’s allegedly excessive bid protections, including the proposed $19 million break-up fee and up to $5 million is expense reimbursement.

In addition, the UMWA said that it had approached a number of potential bidders for Patriot Coal, including some that have executed confidentiality agreements with the company, but that the company has been either non-responsive to the bidders identified by the union, or slow in responding.

Additionally, the U.S. Trustee cited the level of discretion and “unfettered ability” of the company to determine under the procedures who would constitute a “qualified bidder” and what information to provide bidders, as well as the ability to alter the bidding procedures as they see fit, “all without any real oversight or consultation except for, in limited circumstances, in consultation with the DIP lenders.”

On Friday and over the weekend, numerous other parties, including the unsecured creditors’ committee appointed in the case, filed additional objections to the bidding procedures.

“The truncated timeline proposed by the debtors (and orchestrated by Blackhawk) forecloses any realistic possibility of a sale of the debtors’ assets to an alternative, higher and better bidder,” the unsecured creditor panel said, adding, “Absent leveling the playing field to permit fair and open bidding, a sale of substantially all of the debtors’ assets to Blackhawk without exploration of value maximizing alternatives is a foregone conclusion.”

Among other things, the committee said that the break-up fee should be reduced to $5 million, and expense reimbursement should not exceed $1 million. In addition, the committee proposed an extended schedule for the asset sale, calling for a bid deadline of Sept. 21, and auction on Sept. 28, and reorganization plan confirmation and sale approval deadline of Nov. 23, and a deadline for closing the sale of Nov. 30.

For its part, Patriot Coal said that while the additional concessions it has negotiated from Blackhawk have not been sufficient to satisfy the creditors’ committee and other objectors, it has “no viable alternative but to push forward and seek approval of the bidding procedures.”

Noting that the company is operating “in an industry suffering through unprecedentedly difficult times,” the company said it has “little liquidity and thus cannot afford a materially longer sale process even if it were desirable to do so.”

Patriot Coal said that it is “well aware of and shares” the concerns articulated in the objections about the procedures and the Blackhawk deal, but it also argues, “When the court combs through the objections, it will not find a single objector proposing a viable alternative pathway. No creditor has identified a better offer. No creditor proposes to lend money to extend the timeframe for the sale process. In short, no creditor can establish that they would pursue a different path if they stood in the debtors’ shoes.”

Meanwhile, holders of a majority of the company’s secured debt (and its current DIP lenders), including Knighthead Capital, Caspian Capital, Kempner Capital, and Hudson Bay, said in a court filing today that they support the Blackhawk transaction, as do, they say, the holders of most – indeed, about 87% – of the company’s first-lien term loan.

The Knighthead group said it holds, in the aggregate, all of the company’s $100 million DIP, 53% of the company’s $247 million first-lien, second-out term loan, and 75% of the company’s $306 million of 15% second-lien PIK toggle notes due Dec. 15, 2023.

The group noted that while the company’s ABL and about $200 million in claims under the company’s first-lien, first-out, letter of credit subfacility would be paid in full under the Blackhawk transaction, the group’s members would not be paid in full under the proposal, and “therefore hold a majority of all secured debt that is being impaired under the Blackhawk transaction.”

In explaining the need for a rapid asset sale timeline, the group said, “The publicly disclosed truth is that Patriot, as a going concern, runs out of cash in November. … Thus, every coal buyer knows that it cannot rely on Patriot to deliver coal after November, and every potential bidder for Patriot’s assets has known for at least one month that it must act now to buy Patriot as a going concern. The earlier a solvent buyer can acquire Patriot’s coal, the greater the sale price for that coal, the greater the value to the buyer, and the more the buyer will pay.”

According to the lenders, the committee and other objectors might argue that a slower timeline is not harmful because Patriot’s market can narrow over the next six months as the domestic metallurgical coal market shuts and foreign buyers look for more reliable suppliers, but that argument “defies logic.”

“Only a constituency with little to lose – which is the sad fact for unsecured creditors in this case – could argue for delay,” the lenders said.

Lastly, addressing the claims of the UMWA that the union has identified alternate bidders, the secured lenders said they know of “no credible bid for the assets that Blackhawk seeks to acquire that comes close to the consideration provided by the Blackhawk transaction,” adding that the similarly know of no party that is interesting in assuming the union’s collective bargaining agreements or the company’s current pension and retiree health liabilities. – Alan Zimmerman

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AerCap, Ball Corp. add $1.8B in high-yield bonds to upcoming calendar

Two high-yield deals were announced this morning for a total of $1.8 billion. See the LCD High-Yield Forward Calendar for updated details. A cheat sheet follows:

—–Today:

(NEW) AerCap BB+(e)/Ba2(e) $800M 5YNCL/7YNCL senior for capex/repay debt via CS/DB/GS//Barc/BAML/Citi/CA/JPM/Miz/MS/RBC/UBS/WFS

(NEW) Ball Corp. BB+(e)/Ba1(e) $1B 10YNCL senior to repay debt/GCP via BAML/DB/GS/Key/Miz/Rabo

—–This week:

Endo Pharmaceuticals B/B1 $1.435B 8YNC3 senior for M&A via Barc/DB/CS/Citi

Univar USA B(5)/Caa1 $400M 8YNC3 senior to repay debt BAML+

My Alarm Center B-/B3 $265M 5YNC2 secured to repay debt/GCP via Imperial

Georgia Renewable Power TBA/TBA $225M 7YNC3 first-lien for capex via Seaport

TI Automotive B(e)/Caa1(e) $550M 8YNC3 senior for M&A via Citi/JPM/Barc/Miz/GS/Nomura/RBC/UBS

Ashland BB/TBD $1.1B senior to redeem notes via TBD

 

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Ball Corp. to issue $1B of 10-year bonds to repay debt

Ball Corp. has announced a $1 billion offering of 10-year senior bullet notes via Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, KeyBanc, Mizuho, and Rabo as joint bookrunners, according to sources.

The notes are SEC-registered, and pricing is expected today. Proceeds will be used to repay borrowings under the company’s revolving credit facility. The balance, if any, may be used for general corporate purposes, according to filings.

Existing senior ratings are BB+/Ba1. That’s the profile of the company’s last tap of the market in May 2013. The company at that time priced $1 billion of 4% notes due 2023, and the issue traded Friday at 95 to yield 4.728%, trade data show.

Ball Corp. in February disclosed it had obtained a £3.3 billion bridge loan and a $3 billion multicurrency revolver in connection with the company’s planned acquisition of Rexam. Ball and Rexam agreed to merge in a cash-and-stock transaction valued at £5.4 billion ($8.4 billion), including the assumption of net debt, according to the firm.

Broomfield, Colo.-based Ball Corp. supplies metal packaging products to the beverage, food, personal care, and household products industries worldwide. It trades on the NYSE under the symbol BLL. – Joy Ferguson