Loans traded down an average of a quarter of a point in the secondary market compared to the previous week with covenant-lite and low coupon deals taking the worst hit. One trader blamed continued weakness in the high-yield and equity markets for the general market softening.
Burlington Coat Factory was hit particularly hard. Its term loan "B" was quoted as low as 96, according to one trader. The loan was trading in the 98 1/2-99 context a week ago. A trader said the structure of the deal, which is covenant-lite, caused the weakness.
Affiliated Computer Services term loan also slipped to 99 1/2 from 100. The LIBOR plus 1 1/2% coupon on the $800 million term loan is at the low end of the spectrum, traders said. Investors were also spooked by Standard & Poor's downgrade to BB from BB+ on June 20 because of the company's $1 billion share repurchase program. "Although ACS can absorb this additional $1 billion share repurchase, the downgrade to BB reflects the capacity the company has put in place to add significantly more debt through both a $1 billion debt revolver and $3.75 billion of uncommitted accordion loans, with very flexible loan covenants," says an S&P release.
Other low coupon loans that slid in the secondary include Georgia-Pacific Corp.'s $5 billion term loan "B," which fell three-quarters of a point to 99 1/4. That deal has a LIBOR plus 2% coupon. Helix Energy Solutions' $840 million term loan, which also has a LIBOR plus 2% coupon, dipped slightly under par from 100 1/4 a week earlier. Hexion Specialty Chemical, also with a LIBOR plus 2% coupon, fell a quarter of a point to 99 1/2.