Georgia-Pacific steams out of the gate, Eddie Bauer off on accounting error, January set for record volume

By Paul A. Harris

St. Louis, Jan. 16 - Friday was exceptionally quiet in the bank loan market, sources reported, but one specified that nonetheless the asset class appears to be headed for a record-breaking month in terms of issuance.

Among existing paper, a trader had the Eddie Bauer Holdings, Inc. loan off ¼ point because of a balance sheet error.

One market source told Prospect News on Friday that Georgia-Pacific Corp.'s massive $11 billion senior secured credit facility is seeing north of $6 billion of commitments, two days after the bank meeting.

The source commented that the deal looks extremely popular, and added that the rapid build up of the book speaks to the liquidity of the leveraged loan asset class.

The deal, being led by Citigroup, Bank of America, Deutsche Bank and JP Morgan is comprised of a $2 billion five-year term loan A (Ba2) talked at Libor plus 225 basis points, a $1.5 billion five-year revolver (Ba2) talked at Libor plus 225 basis points, a $5 billion seven-year term loan B (Ba2) talked at Libor plus 225 basis points and a $2.5 billion eight-year second-lien term loan (Ba3) talked at Libor plus 350 basis points

The source also commented that the 2006 loan market is off to an exceptionally strong start.

"Volumes are just continuing to increase because of the jumbo deals," the source said, adding that the January calendar contains $25 billion to $30 billion of new issue volume, topping last November's record of $23 billion (the source was using a calendar calculated using different criteria than Prospect News' calendar, which currently has $43.7 billion of deals, a high level historically but below the $60 billion reached last December).

Among the jumbo deals the source mentioned in addition to Georgia-Pacific is the NRG Energy Inc $5.2 billion senior secured credit facility (Ba2/BB-/BB) via Morgan Stanley and Citigroup, as well as a large loan expected to help fund the $3 billion LBO of Texas Instruments Inc.'s Sensors & Controls by Bain Capital. Morgan Stanley, Bank of America and Goldman Sachs are leads on that deal.

"New issue volume is huge," the source said, adding that the market was strong during November and December, and the strength appears to be continuing.

"The technicals are strong because we have also had pretty good CLO issuance," the source added.

Ineos seeing strong demand

A source close to the Ineos Group Ltd. €6.645 billion equivalent senior secured credit facility (Ba3/B+) also said that deal is going well trailing bank meetings last Tuesday in New York and Wednesday in London.

Specifying that it is the biggest deal in the euro market, the source added that the order book is oversubscribed, and includes "a very wide universe of accounts."

The deal, which is being led by Merrill Lynch, Morgan Stanley and Barclays, includes a €1.57 billion term loan A which is talked at Libor plus 225 basis points, a €1.6 billion term B talked at Libor plus 275 basis points, a €1.6 billion term loan C talked at Libor plus 325 basis points, a €1.175 billion securitization facility and a €700 million revolver talked at Libor plus 225 basis points.

The source said that the B and C tranches have dollar components which are seeing great demand from both sides. At present those dollar tranches are approximately $730 million apiece, but the amounts could move depending upon the bond deal.

On Friday the U.K.-based petrochemical company announced it will hit the road early next week in London for €3.105 billion equivalent of senior notes in four tranches, via joint bookrunners Merrill Lynch & Co., Barclays Capital and Morgan Stanley.

Hilton mega-deal also going well

Another market source said Friday that Hilton Hotels Corp.'s $5.5 billion facility (Ba2) via Bank of America and UBS is also going well.

The acquisition deal is comprised of a $2.75 billion multi-currency revolver, a $2 billion multi-currency term loan A and a $750 million term loan B.

The source said that interest in the deal was of sufficient volume that one bank was heard to have been cut back on its pro-rata allocation.

The second-lien market

Sources in the junk bond market, which suffered from an exodus of issuance into the second-lien loan market in the second half of 2005, where rates are better and technical demand more intense, have lately been saying that rising interest rates and more robust demand for junk may be steering issuance back toward bonds.

Hearing this on Friday a bank loan official allowed that this color may be partly correct.

"In the second lien market deals are getting done," the official said, "but spreads have widened."

The source said that the last 16 second-lien loans launched in the market have flexed up. Since the beginning of November, 22 of 25 have flexed up, the source added.

In that time spreads went from 690 basis points and spiked up to 725 basis points.

"The most recent stats have shown it coming back down," the official added.

"The market is still there, but at a higher price. People are talking about building bulk in the high yield market and a better investor sentiment there.

"But I don't see a lot of issuers rushing there just yet."

Eddie Bauer trades down

Traders reported a very quiet session on Friday.

One said that the bank loan paper of Eddie Bauer was ¼ point lower after it announced it has identified errors in the balance sheets and the statements of cash flows in the company's Form 10 registration statement that it filed with the Securities and Exchange Commission on Dec. 15.

In a Thursday press release the Seattle specialty retailer said that the identified errors will result in corrections to the balance sheets and to line classifications on the statement of cash flows, but will not impact net cash flows. In addition, the company does not expect these corrections to result in a change to reported net earnings.

The company added that the errors stem partly from the company's handling of lease accounting.

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