DRS breaks for trading at plus 101 levels; Werner edges its way back up after 10-point plunge

By Sara Rosenberg

New York, Oct. 22 - DRS Technologies Inc.'s credit facility allocated and broke for trading on Wednesday, with the term loan B, which was originally sold to investors at par, bid at 101 before it even hit the market and closing the day at 101½ bid, 101¾ offered. Meanwhile, Werner Holding Co.'s term loan rebounded a bit on Wednesday moving back to mid-90 bids after falling to the low 90s during the previous session.

"Allocations were a little on the light side," a market participant said regarding DRS. "Anybody who was in the existing DRS deal got about 80% of what they used to own. It was implied that anyone who had Integrated Defense got pretty much shut out.

"Right before allocations there was a 101 bid out there from a certain dealer. I think he was hoping that when people got allocations they would steer some paper his way.

"I think it probably will drift a little higher too," the market participant continued. "There's pretty much no refi risk. People are going to try to grab up some of the paper and hold on to it."

DRS' credit facility ended up being sized at $386 million (Ba3/BB-), consisting of a $236 million seven-year term loan B with an interest rate of Libor plus 250 basis points and a $150 million five-year revolver with an interest rate of Libor plus 225 basis points.

Initially the deal was launched as a $512.5 million credit facility consisting of a $362.5 million term loan B with an interest rate of Libor plus 275 basis points and a $150 million revolver with an interest rate of Libor plus 225 basis points.

Pricing on the term loan B was flexed down during syndication due to overwhelming demand.

The size of the B loan was reduced following last week's bond offering at which time DRS priced $350 million senior subordinated notes as opposed to the initially expected offering size of $200 million. The bonds were priced at 6 7/8%, compared to initial price talk of 7% to 7¼%. "Because of the great rate they decided to downsize the B loan," the market professional added.

Proceeds from the credit facility and the bond offering will be used to help fund the acquisition of Integrated Defense Technologies Inc., including repayment of that company's debt.

Bear Stearns and Wachovia are the lead banks on the deal for the Parsippany, N.J. supplier of defense electronic products and systems.

Werner Holding's term loan edged up to 94 bid after dropping as low as 91 bid during Tuesday's session on recent news that it lost a major contract for stepladders, according to a fund manager.

In an 8-K filed late Friday, Werner revealed that Home Depot, it largest customer, will no longer be purchasing aluminum and fiberglass stepladders from the company. Stepladder sales to Home Depot in calendar year 2002 represented 16% of Werner's total net sales and through Sept. 30 stepladder sales to Home Depot accounted for 12% of Werner's total net sales.

Furthermore, the Greenville, Pa. ladder company will also be included in an extension ladder supplier line review with Home Depot later in October 2003. This line review process has several potential outcomes, which include losing or gaining additional business, the filing said.

Prior to the 8-K filing the term loan was quoted at par or above, the fund manager added.

"I think some people have thought about whether Home Depot can really walk away," the fund manager said in explanation of why the bid on the bank debt edged higher Wednesday. "Lowe's gets 100% of their ladders from Werner. Home Depot could potentially lose some of their market share to Lowe's. I think Home Depot's ploy is to get better prices on ladders.

"[Also], the bonds were down quite a bit yesterday. Now they're up about 10 points to 74 bid, 75 offered," the fund manager added.

In follow-up news, Beverly Enterprises closed on its $210 million senior secured credit facility (Ba3/BB) on Wednesday, consisting of a $75 million revolver with an interest rate of Libor plus 325 basis points and a $135 million term loan with an interest rate of Libor plus 325 basis points (flexed down from initial pricing of Libor plus 350 basis points), according to a source close to the deal.

Initially the term loan B was size at $150 million but was later reduced to $135 million following the sale of an additional $15 million principal amount of convertible notes that brought the total convertible offering to $115 million.

The company is using proceed from the credit facility, combined with proceeds from the convertibles offering, to pay existing indebtedness, including $180 million of its senior notes due 2006.

Some factors that market participants said worked in favor of the deal were a strong collateral package with collateral coverage over 2½ times, relatively fair pricing and the company's efforts to streamline its portfolio. For example, on June 30 Beverly Enterprises announced the all cash sale of 18 skilled nursing facilities and two assisted living centers as part of the strategy to divest nursing homes that account for a disproportionately high share of patient care liability costs. Of the net cash proceeds from that sale, $73.5 million was used to pay facility-related debt and to purchase all remaining assets under the company's off-balance sheet lease arrangement. The debt reduction represented more than 10% of the company's total debt, on and off-balance sheet.

One more example came a few days later on July 1 as the company announced the cash sale of CareFocus, a network of 20 licensed home care agencies in North Carolina, saying that the sale was a result of the business unit not aligning with Beverly's long-term strategic plan.

Lehman Brothers is the lead bank on the deal for the Fort Smith, Ark. provider of healthcare services to the elderly.

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