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DaVita places $1.75B 10-year high yield bonds (B+/B1) to yield 5.125%

DaVita Healthcare Partners this afternoon completed its $1.75 billion offering of senior notes via joint bookrunners Wells Fargo, Barclays, Bank of America, Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley, and SunTrust Robinson Humphrey, according to sources. Terms were finalized at the tight end of talk. DaVita is using proceeds to repay a portion of its bank debt. A $5.5 billion loan package is also being used.

Terms:

Issuer DaVita Healthcare Partners
Ratings B+/B1
Amount $1.75 billion
Issue senior (SEC Reg.)
Coupon 5.125%
Price 100
Yield 5.125%
Spread T+249
Maturity July 15, 2024
Call nc5
Trade June 10, 2014
Settle June 13, 2014 (T+3)
Joint books WFS/Barc/CS/GS/JPM/BAML/MS/STRH
Co’s. CA/MUFJ/Scotia/SMBC
Px talk 5.25% area
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Ferrellgas add-on high yield bonds (B+/B2) price to yield 5.877%

Ferrellgas this afternoon completed an add-on to its 6.75% senior notes due 2022 via Wells Fargo, Bank of America Merrill Lynch and J.P. Morgan, according to sources. Terms were finalized at the tight end of talk. Proceeds will be used for general corporate purposes, which include the repayment of debt under the borrower’s secured credit facility.

Terms:

Issuer Ferrellgas, L.P.
Ratings B+/B2
Amount $150 million
Issue Senior (144A)
Coupon 6.75%
Price 104
Yield 5.877%
Spread T+404
Maturity Jan. 15, 2022
Call nc2.5 @par+75% coupon
Trade June 10, 2014
Settle June 13, 2014 (T+3)
Joint books WFS/BAML/JPM
Co’s. CAPONE/FT/MUFJ/STRH
Px talk 103.5-104
Notes First call at par +75% coupon
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Bankruptcy: Momentive restructuring plan-support pact faces a slew of objections

Momentive Performance Materials is facing a slew of objections to its proposed restructuring-support agreement and a related backstop commitment for its $600 million rights offering that is a key part of its contemplated reorganization plan, court filings show.

A hearing on approval of the RSA and the rights offering backstop commitment is scheduled for June 19.

Objections poured in on Friday from virtually every creditor constituency in the case, save for the second-lien lenders that are already parties to the RSA.

Two objections, one from U.S. Bank, the indenture trustee for the company’s 11.5% senior subordinated notes, and another from the unsecured creditors’ committee in the case, both focused on the issue of whether the subordinated notes are subordinate in right of payment to the company’s second-lien debt.

As reported, U.S. Bank has filed an adversary action in the case seeking a declaratory judgment that the subordinated notes are pari passu with, the company’s second-lien debt (see “Momentive’s subordinated holders sue, claim pari passu with 2nd-lien,” LCD, June 3, 2014).

Another set of objections come from the company’s senior lenders, arguing that the proposed RSA violates the intercreditor agreement between the senior lenders and second-lien lenders by providing a distribution to second lien lenders even though first-lien lenders have not been paid in full, since holders will not be receiving a make-whole payment of some $250 million.

According to the senior creditors, the company failed to make a “single attempt” to forge consensus around a reorganization plan.

In addition, the first lien indenture trustee said it intends to file an adversary action in the case to enforce the intercreditor agreement.

And to come full circle, one objection to the RSA came from Fortress Investment Group, a holder of second-lien debt, asserting that it had been unfairly excluded from participation in the RSA and the rights-offering-backstop commitment.

The proposed plan and RSA
As reported, Momentive filed for Chapter 11 protection in White Plains, N.Y., on April 13, with an RSA in hand supported by holders of about 85% of the company’s second-lien notes.

Under the proposed reorganization plan, the company would repay both its first-lien notes ($1.1 billion of 8.875% first-priority senior secured notes due 2020) and its 1.5-lien notes ($250 million of 10% senior secured notes due 2020) in full, in cash, including accrued and unpaid interest, but excluding any make-whole amounts.

Second-lien lenders ($1.161 billion of 9% second-priority springing-lien notes due 2021 and €133 million 9.5% second-priority springing-lien notes due 2021), are to receive the equity in the reorganized company, along with participation rights in a $600 million rights offering at a price per share determined by using the pro forma capital structure and an enterprise value of $2.2 billion, applying a 15% discount to the equity value.

The rights offering is backstopped by the parties to the RSA, of which Apollo is the largest holder, who will receive a premium equal to 5% of the rights offering amount, or $30 million, payable in new common stock. Commitment parties are also entitled to a $30 million alternative transaction fee if the plan contemplated by the RSA is not confirmed.

The company’s senior subordinated creditors, meanwhile, would not see any recovery, due to the right of payment subordination in favor of second lien lenders. Existing equity, needless to say, is to be cancelled.

The subordination dispute
According to the June 6 objection to the RSA filed by the official creditors’ committee, the contemplated subordination of the subordinated debt to the second-lien debt is a “foundational assumption” of the company’s proposed reorganization plan.

Similarly, U.S. Bank noted in its own objection, also filed on June 6, that if the bankruptcy court rules in its favor in the adversary lawsuit, that is, if the bankruptcy court rules that the subordinated debt is not subordinate with respect to right of payment to the second-lien debt, it would render the company’s proposed reorganization plan “facially unconfirmable,” and require the company to “start the plan negotiation, drafting, and solicitation processes back at square one.”

Despite that risk, according to the objections, the company is proceeding with approval of the RSA and the rights-offering-backstop commitment.

“The debtors have decided (and are attempting to bind themselves as debtors in possession) to proceed as planned with a potentially unconfirmable plan,” U.S. Bank said, adding, “Indeed, faced with the choice of a rock (an unconfirmable plan) and a hard place (no strategy for how to exit), the debtors have decided to march on.”

But that tactic presents a timing problem, the objections argue, because the backstop commitment would entitle the backstop parties to a $30 million alternative transaction fee if the reorganization plan contemplated by the RSA is ultimately not implemented, which would occur of U.S. Bank is successful in its lawsuit.

“It is one thing for the RSA parties to pursue a plan of reorganization that may have a built-in confirmation flaw,” the unsecured creditors’ committee said, “it is quite another thing, however, for the RSA parties to seek to impose potentially massive administrative liabilities – which will stand ahead of unsecured creditors – if their RSA plan fails.”

Summary judgment?
As reported, the company last week asked the bankruptcy court to set a timetable for the case that would, among other things, schedule a plan confirmation hearing for Aug. 14. According to the company’s proposed schedule, the subordination dispute would, along with other adversary actions in the case, be litigated on a schedule that would see discovery completed by July 25.

But U.S. Bank said in its objection that it intends to seek summary judgment in the subordination adversary action “in the near future … so that the subordination issue may be resolved in advance of plan confirmation proceedings.” Summary judgment is a legal proceeding that allows a court to rule on a dispute that doesn’t involve any factual disputes on an expedited basis.

It is unclear the extent to which such a process would speed up litigation of the dispute, given the already compressed timeframe advanced by the company.

Beyond that, it is unclear whether even a speeded-up litigation timetable addresses the core complaint in the objections, namely, the tactical leverage held by the second-lien lenders in the case.

While the first lien lenders’ objection to the RSA was based on different grounds than those advanced by the trustee for the subordinated debt, for example, they also argued that the RSA, in effect, provides second-lien lenders with a free option to implement the company’s current proposed reorganization plan or, failing that, to walk away with a $30 million administrative payment in the case. – Alan Zimmerman

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Bankruptcy: Dolan Co. prepackaged reorganization plan nets confirmation

The bankruptcy court overseeing the Chapter 11 proceedings of The Dolan Company approved the adequacy of the company’s proposed disclosure statements and confirmed its prepackaged reorganization plan, after the company reached a settlement in its dispute with the equity committee in the case.

According to the June 9 combined order, under the settlement the company will provide $2 million in cash along with its rights under a certain promissory note to an “equity trust” to be established. The proceeds of the trust would be distributed to the company’s preferred and common shareholders.

The combined order did not provide a value for the rights under the promissory note, which according to court filings was issued as consideration under the purchase agreements for Dolan APC LLC’s former mortgage processing services businesses, but according to court filings, the face value of the note was $2 million. A Debtwire report pegged the total value of the settlement at $3.2 million, but that amount could not be confirmed.

According to the combined order, the proceeds of the equity trust will be allocated 20.13% to holders of the company’s preferred stock, and 79.87% to holders of the company’s common stock.

The promissory note was one of several notes that under the company’s proposed reorganization plan were to be transferred to a special purpose vehicle for the benefit of the company’s credit agreement lenders. The plan continues to provide for the SPV comprised of the remaining promissory notes.

As reported, the company filed a prepackaged Chapter 11 bankruptcy court in Wilmington, Del., on March 23, with a reorganization plan that would exchange the company’s roughly $170 million of debt under its secured credit agreement for 100% of the equity in the reorganized company, the proceeds under the above-referenced SPV, and a new $50 million senior secured “last-out” term loan, according to court documents. The company said at the time that it expected to emerge from Chapter 11 within two months, and a combined disclosure statement/plan confirmation hearing was set for May 1.

On April 23, however, the U.S. Trustee for the bankruptcy court in Wilmington, Del., appointed an equity committee in the case, concluding that based upon regulatory filings and the company’s value set forth in the Chapter 11 petition, the company had residual equity value.

The company maintained that the regulatory and Chapter 11 filings were based on the book value of its assets, and that, pursuant to its enterprise valuation, the company was insolvent and equity was out of the money.

Still, following the appointment of the equity panel, the combined hearing was postponed until May 27.

In an objection to the company’s reorganization plan filed in mid-May, but not made publicly available until last week, the equity committee was arguing at the confirmation hearing that the company’s businesses were “quite viable and valuable,” specifically citing the company’s e-discovery business, discoverReady LLC, as having “extraordinary growth potential.”

The committee alleged that the Chapter 11 case was, in effect, a hostile takeover of the company engineered by Bayside Capital through the purchase of the company’s lender claims beginning in February 2014, then exercising the power it gained by acquiring a majority of the lender claims to force through onerous amendments to the company’s credit agreement and force it into the prepackaged Chapter 11. –Alan Zimmerman

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Jack Cooper sets talk on $150M of 5-year PIK toggle notes; 12th PIK toggle deal of 2014

Jack Cooper has emerged with talk of a 9.75-10% coupon at a new issue discount of 99 on its $150 million offering of five-year (non-call two) senior PIK toggle notes, according to sources. This equates to a yield of roughly 10-10.25%. Joint bookrunners are Wells Fargo and Barclays, sources said.

Books close at the end of business today, with pricing expected tomorrow morning.

Issuance is technically at JCH Parent, and under Rule 144A for life. As with all the other PIK toggle deals this year, structure is the new classic for PIK toggle, with a short tenor and minimal call protection, with the first call premium at 102, although some investor-friendly revisions have been made. The call period has been revised from non-call one to non-call two. Covenants now also include an equity clawback option for up to 100% of the issue at 105 until 2015, then at 103 until 2016. This has been revised from an equity clawback of 100% at 102 during the first year, according to sources.

JCH lines up as potentially the twelfth PIK toggle deal so far in 2014, for a pro forma $3.12 billion in supply, with Interface’s $115 million contingent cash-pay last week the most recent. During 2013, there were 30 PIK toggle deals completed, for a net $11.6 billion in supply, according to LCD.

Ratings on the automobile-transport company’s debut at the holding company level are CCC-/Caa2, with a 6 recovery rating from S&P. Yesterday, S&P lowered the corporate rating to CCC+ from B- on the back of increased leverage due to the debt-financed dividend. It also lowered the 9.25% senior secured notes due 2020 to CCC+ from B- and revised that issue’s recovery rating to 3 from 4.

The company’s most recent visit to market was a $150 million add-on to the $200 million outstanding in 9.25% secured notes due 2020 last fall. Pricing was at 105.25, yielding about 8.06% to worst, with a first call in 2016 at par plus 75% coupon, and recent valuation is 109.25, yielding about 7%, according to S&P Capital IQ. The original issuance dates to June 2013, at par. Proceeds from the October add-on offering were used to fund an acquisition of rival Allied Systems Holdings out of bankruptcy. Wells Fargo was bookrunner and Barclays was a co-manager.

Privately held Jack Cooper Transport, based in Kansas City, Mo., transports new and pre-owned passenger vehicles, light trucks, and sport-utility vehicles. – Staff reports

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Coal credits slide amid bleak prospects; shares fall; Arch, Alpha, Walter, Patriot

A rising tide lifted all boats this week except coal credits as the sector was hit fairly hard and continues to trade lower. While there’s no specific news to point to, market participants relay ongoing negative bias toward the sector as well as bearish Street research that’s circulating, most notably a report this week from UBS on bankruptcy risks within the group.

Arch Coal unsecured 7% notes due 2019 were pegged 74/75 this morning, and traded at 74.5, representing a 1.5-point decline today and 4.5-point decline on the week, according to sources and trade reports. ACI shares, meanwhile, traded off roughly 6% this week, to $3.57. Higher up in the capital structure, the second-lien 8% notes due 2019 shed one point this morning, to 98/99, for nearly a four-point decline on the week, sources noted.

Alpha Natural Resources 6% unsecured notes due 2019 traded at 70.5 this morning, versus 73 yesterday, and 77/79 market quotes going out last week, according to sources and trade data. The benchmark 6.25% notes due 2021 slipped nearly seven points this week, to 68/70, an all-time low, while ANR shares traded down approximately 9% this week, to $3.52.

It was worse for Walter Energy, with WLT shares off 13% this week, at $5.03. In bonds, the Walter Energy second-lien 11% notes due 2020 shed 10 points over the week, to 77/79, while unsecured 8.5% notes due 2021 moved lower by eight points, to bracket 55, according to sources.

In assessing bankruptcy risks for these credits, following Patriot Coal and James River Coal‘s Chapter 11 filings in recent years, there is clearly “mounting financial distress” in the sector, according to the UBS report, which was published on May 27. Arch and Alpha Natural have more than three years of cash reserves, but Walter could run out of cash by the end of next year, according to the report.

Due to their high levels of debt, there may be “limited ability to shed other liabilities through a restructuring process,” according to UBS analyst Kuni Chen, who suggested that it could behoove unsecured bondholders to opt for exchange offers or “other concessions” out of bankruptcy.

Recall that S&P downgraded Arch Coal in March to B, from B+, on weaker-than-expected sales and EBITDA targets in 2014 and 2015. That followed a downgrade by Moody’s to B3, from B2, in October for the same reasons.

The Arch Coal corporate rating of B/B3 has stable and negative outlooks, respectively. Unsecured notes are CCC+/Caa1.

Alpha Natural is also B/B3, though with a stable outlook on both sides. Unsecured notes are also CCC+/Caa1.

Walter Energy is rated B-/Caa1, with negative and stable outlooks, respectively. Unsecured notes are CCC/Caa2. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, and trading news

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JBS USA postpones $750M of 10-year notes after Tyson announcement

JBS USA has postponed its $750 million offering of 10-year (non-call five) senior notes, according to sources. The deal, which was launched late yesterday, was earmarked to redeem a pair of existing issues, including the 10.25% notes due 2016 and the 10.5% notes due 2016. Morgan Stanley and Wells Fargo were joint bookrunners on the issue.

The postponement comes after Tyson Foods this morning announced a $6.8 billion bid for Hillshire Brands, trumping the $6.4 billion offer that JBS-owned Pilgrim’s Pride made on Tuesday.

The Pilgrim’s Pride proposal for Hillshire includes roughly $550 million of rollover debt and a $163 million termination fee payable toPinnacle Foods. Hillshire had agreed to acquire Pinnacle earlier this month for $6.6 billion in cash, stock and assumed debt.

Today, Moody’s commented that the proposed acquisition of Hillshire by Pilgrim’s Pride would be a short-term credit negative for its Brazilian parent company JBS S.A. Moody’s estimated that pro forma leverage at JBS would reach 5.9x, as compared to 4.6x in the 12 months ended March 2014, considering a $6 billion increase in debt. JBS S.A. is rated BB/Ba3.

On Tuesday, Moody’s also put Pilgrim’s Pride’s B1 rating on review for downgrade on the Hillshire bid, citing the anticipation of much higher leverage that would result from the transaction. S&P said ratings on Pilgrim’s Pride were not yet affected by the company’s unsolicited bid for Hillshire, noting that the likelihood of an agreement between the two parties was uncertain due to the existing merger agreement in place between Hillshire and Pinnacle Foods.

Morgan Stanley, which was acting as left lead on the postponed JBS transaction, provided a fully committed bridge facility to Tyson Foods (via Morgan Stanley Senior Funding), according to a Tyson statement. J.P. Morgan is also expected to join the deal, the company said.

This is the second sidelined transaction of 2014, following Trinidad Cement last week, for a combined $1.1 billion of postponed supply. Last year, there were 15 postponements or withdrawals, for a combined $4.9 billion, according to LCD. – Joy Ferguson

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Solera/Audatex add-on high yield bonds (BB-/Ba2) price at 106.5 to yield 4.897%

Solera, via Audatex North America, this afternoon completed an add-on to its 6% notes due 2021 via Goldman Sachs. Terms were finalized at the midpoint of talk, along with a $50 million upsizing. Proceeds will be used for working capital and other general corporate purposes. This may include financing the I&S acquisition, and funding potential put and call options on strategic initiatives. Terms:

Issuer Solera/Audatex North America
Ratings BB-/Ba2
Amount $150 million
Issue senior add-on (144A-life)
Coupon 6%
Price 106.5
Yield 4.897%
Spread T+282
Maturity June 15, 2021
Call nc3.1
Trade May 28, 2014
Settle June 2, 2014 (T+3)
Lead Books Goldman Sachs
Px talk 106.5
Notes Upsized by $50 million
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Interface toggle notes price to yield 13.15%

Interface Security Systems this afternoon completed an offering of senior contingent cash-pay bonds via sole bookrunner Imperial Capital. Terms were finalized at the midpoint of talk, along with a $15 million upsizing. Note that coupon steps up by 200 bps, to 14.5%, when paying in kind. That’s a rare diversion from the typical 75 bps, and it is the first ever toggle step-up of more than 100 bps, according to LCD. The bonds are rated CCC, with a 6 recovery rating from S&P. Proceeds will be used for general corporate purposes and to fund a debt-service-reserve account. Terms: 

Issuer Interface Master Holdings
Ratings CCC/NR
Amount $115 million
Issue senior contingent cash-pay (144A-life)
Coupon 12.5%/14.5%
Price 98
Yield 13.152%
Spread T+1167
Maturity Aug. 1, 2018
Call nc1.25
Trade May 27, 2014
Settle May 30, 2014 (T+3)
Lead Books Imperial Capital
Px talk 12.5% at 98 to yield 13.2%
Notes Upsized by $15 million

 

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Interface Security Systems sets talk on $115M of PIK-toggle bonds

Interface Security Systems is guiding its upsized $115 million offering of senior contingent cash-pay bonds at a 12.5% coupon, at 98, to yield 12.3%, according to sources. Sole bookrunner is Imperial Capital. The deal was increased by $15 million and is expected to come with several structural and covenant modifications, sources added.

Books close today at 3:30 p.m. EDT, with pricing later this afternoon. Proceeds will be used for general corporate purposes and to fund a debt-service-reserve account.

The notes are due in 2018 and are non-callable prior to Aug. 1, 2015, then callable at 105% declining ratably every six months to par.

The issuing entity is Interface Master Holdings. The operating company is rated B3/B-. The new 144A-for-life issue is not rated.

Interface Security last tapped the market in January 2013 with $230 million of 9.25% notes due 2019. Proceeds were used to refinance existing debt and fund general corporate purposes. The issue is currently trading at 101, yielding 8.87%, according to S&P Capital IQ.

Privately held Earth City, Mo.-based Interface Security designs, installs, and monitors electronic security, and IP integration and managed broadband systems. – Joy Ferguson