Investors eager to put money to work piled into the paper of Dex Media East, R.H. Donnelley, and Bell Actimedia last week, sparking more than $100 million in trades in the directories business names. Traders said a comprehensive market mix was trying to buy into these deals, with sellers only looking to trade over par. Both Dex and Donnelly traded north of 101 and Actimedia clocked in as high as 100 3/8.
Several market players attributed the boost to the large amount of cash looking for a home. "There are a lot of guys ramping up, high-yield inflows are still strong and the new issues haven't come out yet," one trader noted. "[The directories deals] are CLO candy," commented one buysider. Michael Hatley, president and chief investment officer at ING Capital Advisors, concurred. "There's definitely a lot of cash out there looking for quality assets," he said. "The directories have stable businesses, good cash flow, and limited capital expenditures so a lot of the cash flow can go to debt service."
In addition to solid company fundamentals, the directories deals offer investors attractive loan packages. Coming into a tight and risk-averse credit market, bankers looking to complete the directories deals offered investors everything but the kitchen sink--thick LIBOR spreads and call protection on names that have ample liquidity. Dex's $700 million "B" offers investors call protection of 102 and 101 for the first two years and a LIBOR plus 4% pricing. Donnelley's $850 million institutional loan is set at LIBOR plus 4% and also includes pre-payment penalties. Actimedia's $625 million "C" loan bears a pricing of LIBOR plus 41/ 2% and possesses call protection of 101."The deals were completed at a time that was wrong for the issuer, but right for us," noted one buysider. Now as the market begins to improve investors are thinking the directories deals are as good as it gets.
Market players are beginning to speculate that pricing on new issue will be thin and call protection clauses will disappear. "Pricing seems to be coming in and on a relative value basis [directory paper] is going to be worth more," commented one dealer. Still, some market players are uncertain whether the market has reached its peak. "It's hard to say what the yields will be. People are still focused on quality deals," an investor noted.