Second-Lien Investors Still Bite At Stratospheric Prices

Second-lien loans for Graham Packaging Co., Headwaters and Advertising Directory Solutions (ADS) were trading around the 103 range last week, boosted by demand and bolstered by call protection premiums.

  • 24 Nov 2004
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Second-lien loans for Graham Packaging Co., Headwaters andAdvertising Directory Solutions (ADS) were trading around the 103 range last week, boosted by demand and bolstered by call protection premiums. Graham's $350 million second lien traded at 102 1/2-103. Meanwhile, Headwaters' $150 million second-lien loan was quoted around 103-103 3/8. ADS' $320 million second-lien loan traded in the 102 5/8-103 1/8 range. "It is driven by the call protection, the fact that investors are hungry for yield and the fact they are willing to chase paper," an analyst said, adding that demand for second-lien loans will continue if they have call protection.

Graham's second lien has call protection of 102 for the first year and 101 for the second year. Headwaters' second lien has call protection of 103, 102, 101 for the first three years. ADS' second lien has call premiums of 102, 101.

The analyst said investors still make money buying at these levels. "It burns down over time. So even if they overpay for it they figure that if they hold it for a few months and it doesn't get repriced then they make money," he noted. But he believes investor appetite will slow down as they wait for a negative credit event to lower prices. "It's going to back off in the next couple of months. The momentum definitely doesn't seem to be there. Now that it's reached those levels people are in a holding pattern not really making any decisions," he noted.

Graham's second lien is priced at LIBOR plus 4 1/4% (LMW 10/18). The deal is led by Citigroup. Headwaters bank debt also comprises a $640 million first-lien and is led by J.P. Morgan and Morgan Stanley (11/10). Headwaters' second-lien loan is priced at LIBOR plus 5 1/2%, while the first lien is priced at LIBOR plus 3/4%.

ADS' deal also comprises a $800 million first-lien loan. The deal backed Bain Capital's $1.54 billion acquisition of SuperPages Canada. ADS' first and second-lien pieces are priced at LIBOR plus 4% and LIBOR plus 2%, respectively. J.P. Morgan and Bank of America lead the ADS deal. Sharon Madden, director of investor relations for Headwaters, did not return calls. Bain officials and a spokesman for Graham also did not return calls.

  • 24 Nov 2004

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 15,256 32 17.31
2 Bank of America Merrill Lynch (BAML) 9,637 29 10.93
3 Citi 8,264 22 9.37
4 Lloyds Bank 7,329 24 8.31
5 JP Morgan 6,580 10 7.46

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Rank Lead Manager Amount $m No of issues Share %
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1 Citi 130,254.20 381 11.03%
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3 JPMorgan 103,862.77 304 8.80%
4 Wells Fargo Securities 93,728.92 276 7.94%
5 Credit Suisse 76,912.30 210 6.51%