The continual shaving of coupons is being felt in the secondary market, where credits that were flying above par a few months ago are now trading much closer to 100. Cebridge Communications and Hexion Specialty Chemical both broke at 100 1/4 last week and dealers said both are emblematic of the current market. "Two months ago that credit would have broken at 101," a buyside trader said of Hexion's $1.625 billion term loan, which is priced at LIBOR plus 2%. "It is a single B name that should be priced at 275."
Investors are growing increasingly annoyed with the steady repricing grind. Last week, some investors walked away from Activant Solutions' $340 million deal just before it closed after the pricing was cut by 25 basis points. The term loan, which was flexed down to LIBOR plus 2%, broke at 100 1 /2. "It always upsets people when deals are flexed down," one trader noted.
That feeling of unease is starting to take root, traders said. "Gone are the days when deals are 101 on the break," a trader said. "A lot of deals are too big and too aggressive on the coupon. The market is petrified about repricings."
One buoy for trading levels is call protection. Pricing on Quiznos' first and second liens was cut by 25 basis points before they broke for trading last week. But the better priced $225 million second lien, which carries call protection of 102 and 101, broke at 102. The first lien broke at 100 1/2 (see story, page 3).
Goldman Sachs and Credit Suisse lead the Cebridge deal, which backs the acquisition of assets from Charter Communications and Cox Communications. The term loan is priced at LIBOR plus 2 1/4%. GS Capital Partners, the private equity arm of Goldman Sachs, and Oaktree Capital Management are the majority investors in Cebridge and the primary equity partners in the deal.
Credit Suisse and JPMorgan lead the Hexion deal. Moody's Investors Service assigned B2 ratings to the $50 million letter of credit facility and $1.625 billion term loan; S&P assigned B+ ratings to all tranches. There is also a $225 million revolver that is staying in place. The company plans to do a stock offering in the coming months.
Calls to officials at Cebridge were not returned. A call to Bill Carter, executive v.p., cfo and director of Hexion, was referred to a company spokesman, who, citing a quiet period surrounding the IPO, declined all comments other than to say "we continue to pursue the IPO." A CS spokesman declined comment. An Activant spokeswoman did not return calls seeking comment. Officials at Deutsche Bank and JPMorgan, leads on the Activant deal, declined to comment.
