The low price of an outstanding issue by Panavision explains the unusual structure of a proposed new $250 million bond deal by the company, according to an official familiar with the deal. The proposed issue would give bondholders a second lien on collateral that is part of the deal--a higher degree of security than is typical in media sector issues, one media analyst says. However, higher security was needed because a deal comparable in structure to the outstanding issue would require a coupon of well over 20%, since that is where the outstanding issue was trading last week. Several high-yield desks did not have trading levels for the camera maker's single outstanding high-yield issue, its 9.625% senior discount notes of '06 (Caa1/B-), but one sell-side desk quoted the bonds at 40 last Tuesday. High-yield officials offer several explanations for the low price, including the company's high leverage (5.5-6 times debt-to-cash flow), the bonds' poor position in the capital structure given the amount of bank debt outstanding, and concerns that competition from digital technology will reduce cash flow.
One high-yield official familiar with the deal expects it to hit the road in the next three weeks. No investors contacted by BW were familiar with the deal. J.P. Morgan Securities and Salomon Smith Barney are joint-lead managers on the $430 million refinancing package, which includes $180 million of bank debt. Price talk on the deal could not be determined. Jim Casey, head of high-yield capital markets at J.P. Morgan declined comment. Rich Zogheb, co-head of leveraged finance at Salomon Smith Barney, and Scott Seybold, cfo and executive v.p. of Panavision, did not return calls.