A market crowded with auto deals was blamed for Visteon Corp.'s $800 million term loan dropping below par after it broke in the secondary market last week. The credit broke in the high par range Tuesday before dropping to 99 7/8 a day later. "Everyone is sick of auto-related deals," said a buyside trader commenting on the abundance of sellers on the name. He added that the deal has no financial covenants and poor asset coverage.
JPMorgan and Citigroup lead the covenant-lite loan, which is priced at LIBOR plus 3%. The credit line also consists of a $700 million asset-backed revolving credit facility, which contains U.S. and European tranches. The company says in a release it expects to complete the facility over the next several weeks. The buyside trader complained that the asset-backed revolver is bad for term loan holders because revolver holders have a first lien on the best assets of the company. "The market is sick of these poorly structured deals. The ABL revolver means you get screwed on the collateral," he said. A Citigroup spokeswoman declined comment. A call to JPMorgan spokeswoman was not returned.
The term loan has a first lien against the company's shareholdings in certain subsidiaries, which is limited to 65% on certain international subsidiaries, according to a Moody's Investors Service report. It has a second lien on collateral pledged to the new U.S. asset-backed revolving credit. The term loan has no financial covenants, said Edwin Wiest, an analyst at Moody's. He added that the revolver contains covenants that are triggered when it reaches certain defined liquidity levels, at which time a fixed-charge coverage ratio applies until it achieves a further defined liquidity threshold. The company has not disclosed these liquidity levels.
Visteon used the proceeds to refinance debt, including a $350 million term loan and a $241 million delayed-draw term loan. It also repaid $50 million of borrowings under its $771 million multi-year secured revolving credit facility and reduced the amount available under that facility to $500 million. It expects to eliminate the revolver when it completes the new U.S. and European revolving credit facilities.
Moody's assigned a B1 rating to the term loan. In a report the agency says the new financing will buttress Visteon's liquidity profile and improve its ability to restructure in the near term. A Visteon spokesman said the deal is a solid step in the financing sector and declined to comment further.