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Rayovac Tests Buyside Waters

31 Aug 2002

The $675 million Bank of America and Salomon Smith Barney-led credit for Rayovac Corp. is being eagerly watched as an indicator of market demand, as it acts as the first big deal post-Labor Day to be followed by a series of super-large institutional loans. The credit contains a $375 million "B" piece priced at LIBOR plus 31/ 4%, but some bankers and investors are suggesting that may be on the low end and they are anxious to see if it clears the market and sets a post-Labor Day bar for the credits to follow. "Considering the leverage, this should be at least 31/ 2% or 33/ 4%," one banker said. The loan is rated Ba3 and the ratings outlook is negative, he noted. Another said, "The summer blip is unlikely to be a one-off, and we can expect double-B deals to price north of 350 basis points."

The Rayovac loan backs the acquisition of the consumer-battery operations of Hannover, Germany-based Varta. The transaction will make Rayovac one of the top three players in the consumer battery market, noted one banker, who said there is also a 50% cash flow sweep in the credit agreements that will also reduce debt. The Varta consumer business outside Germany will be bought outright, while the German consumer battery operation will be set up in a joint venture that will be 50% owned by Rayovac. The credit facility also comprises a $100 million euro-denominated term loan and a $200 million multi-currency revolver.

With Del Monte Foods, Burger King, Penn National Gaming and part one of Qwest Communications International's directories business on the horizon, the supply of paper is going to be there, but there are conflicting views of demand from the institutions, said one banker. He pointed to the continued outflow from high-yield bond funds as one signifier, but there are also a number of loan funds with cash on the sidelines. There are currently more than 10 CLOs in the pipeline and based on the arbitrage, more deals will be launched in the next few months, stated an analyst.

The appropriate bankers either could not be reached by press time or did not return calls. Randall Steward, cfo of Rayovac, and John Beattie, treasurer, were not available for comment. A spokesman was also unavailable.

31 Aug 2002