content

Bankruptcy: Exide creditor panel objects to new DIP, at issue is noteholders’ control

The unsecured creditors’ committee in the Chapter 11 proceedings of Exide Technologies has filed a “limited objection” to the company’s proposed increase of its DIP facility, saying the terms of the additional financing “inappropriately favor the [unofficial noteholders’ committee in the case], are unduly prejudicial to the rights of unsecured creditors, and are not in the best interests of the debtor’s estate.”

Of particular concern to the unsecured creditors’ panel is a requirement of the additional $65 million financing that the company enter into a plan support agreement with the noteholders’ committee.

As reported, the company announced on July 1 that it had received a non-binding reorganization proposal from an unofficial committee of senior secured noteholders that “contemplates substantial deleveraging of the company’s debt by more than $700 million, a sizable investment of new equity capital, and new debt to fund the [company’s] emergence and post-emergence business.” The company further said that the proposed new debt issuance would be about $185 million, and would be backstopped by “certain members” of the unofficial committee, as well as a new asset based loan facility to be obtained from third-party lenders in connection with a reorganization plan confirmation. The proposed new equity investment, meanwhile, would consist of roughly $300 million of preferred convertible equity, a portion of which would be issued through a rights offering backstopped by the unofficial committee, with the balance in the form of a direct equity purchase by committee members (see “Exide says noteholder panel’s proposed plan is ‘highly constructive’,” LCD, July 1, 2014).

A week later, the company announced a proposed amendment to its DIP facility that would upsize the $500 million DIP by $65 million to bridge the company’s “way through the plan negotiation and confirmation process.” In that motion, the company also said the previously announced noteholder committee proposal was “the likely path the debtor will follow in order to emerge from Chapter 11 in the near term with its operating business intact, a healthy balance sheet, and the capital resources necessary for considerable investment in Exide businesses.” (See “Exide upsizes DIP by $65M; says panel proposal is likely reorg path,” LCD, July 8, 2014).

But according to the unsecured creditors’ committee objection filed on July 15, so far the company has “refused to negotiate with the [creditors’] committee, or, for that matter, any party other than the [noteholders’ committee] in connection with the structure of a plan of reorganization and an exit strategy. The debtor has also shunned the [creditors’] committee’s efforts to open the plan process to third parties.”

According to the panel, the DIP amendment’s requirement that the company enter into a PSA with the noteholder committee will likely force the company to simply back the noteholders’ proposed reorganization plan, even though the company has yet to share the terms of the PSA with either the committee or the bankruptcy court, or to publicly disclose any of its terms.

‘More specifically,” the unsecured creditors’ committee said, “the PSA will likely tie the debtor’s hands by prohibiting the debtor from negotiating with any of its other major creditor constituencies or amending the PSA in a manner adverse to the [noteholders’ committee]. Essentially, these restrictions will likely give the [noteholders’ committee] complete control over the contents of the plan of reorganization, despite the fact that the debtor is supposed to be the architect of the plan with duties to negotiate with and treat all constituencies fairly.”

The unsecured creditors’ committee also notes that the lock-up embodied in the PSA is exacerbated by the fact that the existing DIP facility already requires the company to file a reorganization plan by July 31, a milestone deadline the committee wants to see eliminated.

The committee said that while it did not object to a different milestone deadline in the DIP facility, namely, a Dec. 31 deadline to emerge from bankruptcy, it “does not believe there is any reason why a plan must be filed by July 31.” The committee called that milestone “an artificial deadline that only benefits the [noteholders’ committee] by granting them further unfair dominance and control over the most important aspect of any Chapter 11 case – the negotiation and development of a plan of reorganization – without opening a plan process to third parties.” The committee said that since the company’s assets were not declining in value and lenders had adequate protection in place, “such additional milestones simply are unnecessary, unreasonable, and not in the best interests of the estate as a whole.”

Last, but not least, the panel said the fees associated with the upsizing of the DIP “appear to be excessive.” Total fees, the objection said, would amount to $5 million, or about 7.7% of the funds being advanced, even though the term of the additional DIP borrowings would be only four months.

As reported, a hearing on approval of the additional DIP borrowings is scheduled for July 22 in Wilmington, Del. – Alan Zimmerman

content

Molycorp cut to CCC on unsustainable capital structure; bonds trade down

Molycorp this morning was downgraded by S&P to CCC, from CCC+, on the view that the rare-minerals mining concern has an unsustainable capital structure and that its liquidity position will continue to erode over the next 12  months. The outlook was revised to negative, from developing.

The company’s secured notes were also lowered to CCC, with a recovery rating still at 3, reflecting expectations for meaningful recovery (50-70%) in the event of default. The company’s unsecured convertible notes were lowered to CCC-, from CCC, with the recovery rating at 5, indicating expectation for modest recovery prospects (10-30%).

The secured notes – a $650 million issue of 10% notes due 2020 – changed hands many times this morning in small lots ranging from 92-93.5, trade data show. Market players relay quotes in the Street at 92.5/93.5, which is up half a point this week but down four points from prior to the release of first-quarter results in early May.

Recall that lows were in the high 80s that month (see “Molycorp bonds trade down further ahead of investor-day webcast,” LCD News, May 14, 2014).

As for today’s downgrade, which puts the notes at a CCC/B3 profile, S&P said “sources of liquidity may not be sufficient to cover operational and working capital needs, interest, and capital spending over the next year.”

“We believe it is likely to conduct some form of capital restructuring during that time, which could include a distressed debt exchange,” explained S&P credit analyst David M. Kuntz.

S&P also flagged “execution risk at and reliance upon its Mountain Pass facility, volatile rate earth elements pricing, and the large fixed nature of its cost structure.”

“[Business risk profile] also incorporates the company’s poor track record of operating performance and our forecast for further weak results,” outlined Kuntz.

As reported, Molycorp posted in May net revenue of $118.5 million, a 4% decrease sequentially and roughly an 18% decrease versus the year-ago first quarter, according to corporate filings. Management cited “a shifting product mix,” with higher sales in chemicals and oxides offset by lower sales in the resources segment, and softer pricing for rare earths and magnetic powders, filings show.

Results showed negative EBITDA of about $28 million, versus the consensus mean estimate for negative $10 million, according to S&P Capital IQ.

Second-quarter results are due publicly on Aug. 6, 2014, and an investor call is scheduled for the following morning, on Aug. 7, 2014 at 9:00 a.m. EDT, according to the firm.

Greenwood Village, Colo.-based Molycorp placed the $650 million issue of 10% secured notes in a speculative-grade corporate debut in May 2012 backing an acquisition of Neo Material Technologies. Bookrunners were Morgan Stanley and Credit Suisse, with ratings of B/B2 at offer. – Matt Fuller

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

content

inVentiv launches refi into new B-4 TL, seeks nod on note exchange

Citigroup today launched a $445.7 million TLB-4 for inVentiv Health that would be used to repay the issuer’s B1-2 term debt maturing in 2016, sources said.

The new loan would match pricing and maturity of the current TLB-3 due May 2018 which is priced at L+625, with a 1.5% LIBOR floor. The B-4 is offered at 99.75-100, sources said. However, the B-4 would have 12 months of 101 soft call protection, while the B-3 currently has a 102 soft call, stepping down to 101. The B1-2 debt is coming out at par.

The issuer is also seeking an amendment that would permit the exchange of a portion of its senior notes into new junior secured PIK debt and allow for funds affiliated with Thomas H. Lee Partners, L.P. and other existing investors to invest roughly an additional $50 million of capital into inVentiv, which would come in as debt.

The issuer is looking to move up to $482 million of its $811.2 million of 10% unsecured notes due August 2018 into a  junior, third-lien PIK toggle issue, also maturing in August 2018. If interest is paid in cash, the notes would bear interest at 10%, jumping to 12% if the issuer elects PIK interest.

The sponsor money would come in as $51.3 million of debt comprising $25 million of the junior secured PIK toggle debt and $26.3 million of senior notes. Proceeds of the investment would go on the balance sheet as cash. Holders representing $350 million of notes  have already agreed to participate, sources noted.

There is a fee of five basis points on offer for the amendment. Commitments are due on July 22.

The B1-2 loans due 2016 total $445.7 million currently. The B-3 currently totals $130.6 million, while pari pass secured notes due January 2018 total $625.6 million. The B-3 loan includes a springing maturity to October 2017 if the first-lien notes are still outstanding, sources noted.

The net leverage total is 9.69x, and net first-lien leverage is 5.7x. If the transaction is completed as presented, net first-lien leverage falls to 5.5x, but net secured leverage jumps to 8x, and total net leverage increases marginally to 9.7x. – Chris Donnelly

content

Bonanza Creek Energy returns to market with $300M high yield bond offering

Bonanza Creek Energy is back in market after eight months with a $300 million offering of 8.5-year (non-call four) senior notes via an RBC-helmed bookrunner team that includes joint books Wells Fargo, J.P. Morgan, KeyBanc, and BMO, according to sources. The deal is today’s business, with pricing expected following an 11:00 a.m. EDT investor call, the sources added.

Proceeds will be used to repay all RC borrowings and fund general corporate purposes, which may include supporting oil and gas drilling and development, as well as capital expenditures, according to SEC filings. It’s a public offering, and existing senior note ratings are B-/B3.

That’s the profile on Bonanza Creek’s $500 million series of 6.75% notes due 2021, which represented a market debut in April 2013 followed by a $200 million add-on in November. Pricing of the latter was 104.5, to yield 5.77%, but the paper now trades at 107, yielding about 5.1% to worst, with a first call at par plus 50% coupon in 2017, trade data show.

Denver, Colo.-based Bonanza Creek primarily engages in development and production in the Wattenberg Field in Colorado and the Dorcheat Macedonia Field in southern Arkansas. The company’s shares trade on the NYSE under the ticker BCEI with an approximate market capitalization of $2.4 billion. – Matt Fuller

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

content

McGraw-Hill Education $400M PIK toggle notes price at 8.75% yield

McGraw-Hill Education today completed its $400 million offering of senior PIK toggle notes via Credit Suisse, Morgan Stanley, Jefferies, UBS, Nomura, and BMO. Terms were finalized at the midpoint of talk. Note the bonds feature a 100% equity clawback at 102 in the first year and 101 in the second year. This marks the third PIK toggle deal with a 100% claw option this year, though there have been several with 40%. The feature might flag a near-term IPO. Proceeds from the company’s return to market after 15 months will be used to fund a dividend to shareholders. The company was bought by Apollo Management for $2.5 billion in a deal that closed in March 2013. Apollo invested $950 million in equity. Terms:

Issuer McGraw-Hill Education via MHGE Parent, LLC and MHGE Parent Finance, Inc.
Ratings B-/Caa1
Amount $400 million
Issue senior PIK toggle (144A-life)
Coupon 8.5%/9.25%
Price 99
Yield 8.748%
Spread T+703
Maturity Aug. 1, 2019
Call nc2 @102, then 101, par
Trade July 14, 2014
Settle July 17, 2014 (T+3)
Bookrunners CS/MS/Jeff/UBS/Nomura/BMO
Price talk 8.5% area, at 99
Notes First call at 102, then 101. 100% equity clawback at 102 in first year, then 101 in second year.
content

American Media bonds edge higher on takeover news, default waiver

American Media 11.5% first-lien notes due 2017 added one point, to 106/107, and traded in blocks at the low end of that quote, after the company revealed a takeover by an unnamed investor and a loan-default waiver to address a late annual report. The news comes a week after the company delayed its 10-K filing and a “going concern” warning was raised after the magazine publisher’s major wholesaler filed for bankruptcy.

Unnamed investors will acquire 100% of the private common shares of American Media for $2 million and the assumption of roughly $513 million of debt, for an implied enterprise value of $515 million, according to an SEC filing. The agreement also includes $5 million via an unsecured delayed-draw loan facility; a provision for another $7.5 million by Dec. 15; and a waiver of mandatory-buyback payments on the company’s $94 million issue of 10%/13.5% second-lien PIK-toggle exchange notes due 2018, saving the firm $12.7 million, the filings show.

The deal also carries a 30-day “go-shop” provision “ to seek a competing transaction,” and the company intends to seek a waiver for the change-of-control put provision on the first-lien notes, filings show. Current investors support the latter, and other bondholders will be engaged for such, the filing shows.

The default waiver on a revolving credit line, with J.P. Morgan as administrative agent, runs until July 15, but the company intends to seek an additional waiver by then, the filings show.

With the additional roughly $25 million via the new money and cost savings, market sources relay an expectation that there will be no going-concern warning when the delayed 10-K is filed.

As reported, American Media exited a prepackaged Chapter 11 in December 2010, with subordinated noteholders, which included Angelo Gordon, Avenue Capital and Capital Research, in control of the company. The company entered Chapter 11 with total liabilities of $1.23 billion, and exited with $385 million initially of the 11.5% first-lien notes, $140 million of 13.5% second-lien notes due 2018, and a $40 million revolving credit facility.

The 13.5% paper was swapped into the PIK-toggle debt last year, filings show. Also recall that three years ago the New York Post reported that Apollo Management may be interested in the firm, which owns, among other properties, the National Enquirer, StarShape, and Muscle & Fitness. – Matt Fuller

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

content

Inflows to bond ETFs offset high yield bond mutual fund outflows

Retail-cash inflows for high-yield funds totaled just $90 million in the week ended July 2, compared to the $619 million inflow last week. This week’s number represents the eighth inflow in the past nine weeks, for a combined $3.2 billion inflow over that span.

While last week’s inflow was balanced with ETFs representing 55% of the sum, or $338 million, today’s reading shows a mutual fund outflow of $33 million compared to inflows to ETFs of $123 million. The trailing-four-week average dropped to $187 million per week from $240 million last week.

The full-year reading now shows inflows of $6.6 billion, and it’s roughly 19% related to the ETF segment. In contrast, one year ago, which included the single largest one-week outflow on record – $4.6 billion for the week ended June 5, 2013 – the full-year reading was negative $9.3 billion, with 31% tied to ETF withdrawals.

The change due to market conditions was positive $384 million this past week, or essentially negligible against total assets, which were $191.7 billion, of which 20% is tied to ETFs, or $38.6 billion. Total assets are up $9.6 billion in the year to date, reflecting a gain of roughly 5.6% this year. - Joy Ferguson

content

Inflows to high yield bond ETFs offset mutual fund outflows

Retail-cash inflows for high-yield funds totaled just $90 million in the week ended July 2, compared to the $619 million inflow last week. This week’s number represents the eighth inflow in the past nine weeks, for a combined $3.2 billion inflow over that span.

While last week’s inflow was balanced with ETFs representing 55% of the sum, or $338 million, today’s reading shows a mutual fund outflow of $33 million compared to inflows to ETFs of $123 million. The trailing-four-week average dropped to $187 million per week from $240 million last week.

The full-year reading now shows inflows of $6.6 billion, and it’s roughly 19% related to the ETF segment. In contrast, one year ago, which included the single largest one-week outflow on record – $4.6 billion for the week ended June 5, 2013 – the full-year reading was negative $9.3 billion, with 31% tied to ETF withdrawals.

The change due to market conditions was positive $384 million this past week, or essentially negligible against total assets, which were $191.7 billion, of which 20% is tied to ETFs, or $38.6 billion. Total assets are up $9.6 billion in the year to date, reflecting a gain of roughly 5.6% this year. - Joy Ferguson

content

Hub Holdings drives by with $380M of PIK-toggle notes

Hub Holdings is prepping a $380 million, 144A-for-life offering of five-year (non-call one) contingent cash pay notes. Morgan Stanley, Bank of America Merrill Lynch, RBC, BMO Capital Markets, and Macquarie Capital are bookrunners.

An investor call is scheduled for 10:00 a.m. EDT today, for pricing thereafter.

Proceeds will fund a dividend and banks are guiding investors to expected ratings of CCC+/Caa2.

The first call is at 102, then 101, and finally at par.

HUB International Ltd. provides insurance brokerage services – including commercial, personal, employee benefits, reinsurance, life, health, property, casualty, investment, and risk management products – to individuals and businesses throughout the U.S. and Canada. – Luke Millar

content

Carlson Travel Holdings inks PIK-toggle notes (B-/Caa1) at 7.5% yield

Carlson Travel Holdings this afternoon completed its offering of senior PIK-toggle notes via Morgan Stanley and J.P. Morgan. Terms were finalized inside of its 7.75% area talk, according to sources. Proceeds will be used as part of the financing for the proposed buyout of SapoToro, which holds the 45% equity interest in Carlson Wagonlit Travel that is not held by the issuer. SapoToro is a wholly owned subsidiary of Chase Travel Investment, which is owned by J.P. Morgan Chase & Co.

Terms:

Issuer Carlson Travel Holdings
Ratings B-/Caa1
Amount $360 million
Issue senior PIK toggle (144A-life)
Coupon 7.5% cash/8.25% PIK
Price 100
Yield 7.5%
Spread T+579
Maturity Aug. 15, 2019
Call nc1 @ 102
Trade June 26, 2014
Settle July 3, 2014 (T+5)
Bookrunners MS/JPM
Price talk 7.75% area
Notes Equity claw may redeem up to 100% prior to Aug 15, 2015 at 102% with proceeds of certain equity offerings.