HCA's $8.8 billion term loan "B" traded well on its break in the secondary market last week, surprising traders who thought the deal's size and the number of other large deals recently breaking might put a damper on HCA trading. The term loan the largest ever in the loan market broke at 100 1/2-5/8 and continued to trade in that context. Traders estimated HCA accounted for about 80% of trading in the loan market last Tuesday, a day after the term loan broke. The name was equally dominant in the loan-only credit default swap market.
"I was surprised it broke so strongly and held up as well as it did," said one buyside trader. "I thought it would have had more sellers." Another buyside trader said he expected HCA to break lower--100 1/4-1/2--and that the higher break was a testament to the market's liquidity.
The sheer size of the deal led to big chunks of it being traded and most desks were playing heavily in the name. "It is not often you see a 10 x 10 market in a name," he said, referring to the size of the trades. He said certain dealers were trading $400 million of paper in the name.
HCA's $2.75 billion term loan "A" traded more actively than the term loan "B" because banks were selling their exposures, traders said. Funds were interested in buying into the term loan "A" because it traded at a discount to the term loan "B" the term loan "A" traded at 99 5/8-7/8. The term loan "A" is priced at LIBOR plus 2 1/2%, the term loan "B" is priced at LIBOR plus 2 3/4%, with a step down to LIBOR plus 2 1/2 when leverage falls below six times (CIN, 11/13). "People were looking at the term loan "A" as a good value play. It is only 25 basis points cheaper. They can buy it at a discount," he said.
HCA's LCDS saw five-year contracts trading in the high 150s and the three-year contracts actively trading in the high 90s. "HCA is the most active," said one dealer. "A lot of people are trading it. It definitely dominated the flows on the [LCDS] side."
Some traders were especially surprised other healthcare names weren't affected. "We haven't seen the impact yet that people are selling out of other [healthcare] loans; it's still a waiting game to see if [healthcare] paper comes out from the market," one trader said.
Bank of America, JPMorgan, Citigroup and Merrill Lynch lead the credit, which backs the leveraged buyout of the company by Bain Capital Partners, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity.
