Tesoro's loan trades below par; Adelphia loan stable after Nasdaq's delisting decision

By Sara Rosenberg

New York, May 31 - In the current market environment in which most new issues have been trading at a premium, a loan that trades below par tends to stand out. Tesoro Petroleum Corp. caught people's attention for this very reason as it began to weaken Thursday and continued on that path into Friday. The new loan is currently trading at 99, according to a fund manager.

It is extremely rare for a new issue to trade below par "and it says something about the loan," the fund manager said.

He noted the new facility was used to help finance Tesoro's acquisition of the Golden Eagle refinery, a transaction that did not go smoothly as the price had to be renegotiated.

But even while Tesoro was buying assets that transformed the company, management was "talking about ways to cut costs," the manager said, something that has raised concerns among investors. "You don't want to worry about capital structure that soon after a new issuance."

Meanwhile, Adelphia Communications Corp.'s bank loans were remarkably stable, according to a market professional, despite Nasdaq's decision on Thursday to delist the troubled company. Due to the delisting, which is effective starting June 3, the company will be required to make an offer to purchase all of its outstanding 6% convertible subordinated notes due Feb. 15, 2006 and its 3.25% convertible subordinated notes due May 1, 2021, a company press release said.

The Coudersport, Pa. cable company's bank paper has been trading in the range of 89 to 92, the professional said. More specifically, the Adelphia Century loan has been trading in the high 80s and the Olympus loan has been trading in the low 90s.

The bank paper did not experience a drop on Friday because "people saw the writing on the wall last week so no one is surprised," the professional said regarding the delisting. "Also, the entire market decided that (Adelphia) will make good on interest to banks."

Not much trading took place on Adelphia Friday, according to a trader. "When you have a company that's in that much trouble and its bank loans are trading in the high 80s, you have to feel pretty comfortable," the trader said.

Coming up in primary activity is Six Flags Inc.'s new credit facility, which according to the fund manager, is a unique deal.

In terms of "diversification of a portfolio, you won't get anything else like that credit," the fund manager said. He explained that amusement parks as an industry don't issue a lot of debt and there is no perfect comparison to Six Flags. For example, Disney is not just in the amusement park sector; rather it is also tied to ABC and other entertainment operations.

In addition, Six Flags is reasonably leveraged and bounced back from a slight drop due to nervousness over terrorism after Sept. 11, the fund manager concluded.

Six Flags is scheduled to hold a bank meeting in early June regarding the new $1.050 billion credit facility, according to a syndicate source. Lehman Brothers is the lead bank on the deal.

The loan is expected to consist of a $600 million seven-year term B, a $300 million six-year working capital revolver and a $150 million six-year multi-currency revolver. Interest rates are still under discussion, the syndicate source said.

The Oklahoma City, Okla. theme park operator will use the new credit facility to refinance existing debt. Basically all assets of the company are being used to secure the loan.

News of Symbion Inc.'s proposed $100 million three-year revolver was released Friday in a filing with the Securities and Exchange Commission. The loan would close in conjunction with the completion of the company's initial public offering. Bank of America will lead the syndicate of financial institutions.

Interest on the loan would vary depending on the Nashville, Tenn. surgery center operator's leverage ratio. The commitment fee, also based on the leverage ratio, is expected to range from 37.5 basis points to 50 basis points, the filing said.

In other news, Roundy's Supermarket (BB-) experienced a decrease in interest rates and an increase in size in the week before Memorial Day, according to a syndicate source. The $250 million term B was flexed down to Libor plus 250 basis points from an original spread of 300 basis points and the revolver was flexed down to 300 basis points from 325 basis points, the syndicate source said. In addition, the revolver's size was increased to $125 million from $90 million.

People had to recommit to the deal due to the changes, which went well, the syndicate source said.

The drop in interest rates was a result of the upsizing of Roundy's bond offering to $225 million from $200 million and the good spread on the bonds, which were priced at 8 7/8%, the syndicate source explained.

The Pewaukee, Wis. food wholesaler and retailer's loan, which is secured by basically all assets, is scheduled to close on June 6. Proceeds are being used to help finance the leveraged buyout by Willis Stein & Partners. Bear Stearns and CIBC are co-leads for the offering.

J.C. Penney Corp. Inc. closed on a new $1.5 billion three-year revolving credit facility secured by domestic department store and catalog inventories, according to a company press release. The initial interest rate is Libor plus 175 basis points, but it can vary depending on credit ratings. JPMorgan and Credit Suisse First Boston were co-leads on the credit facility and JPMorgan was sole bookrunner. Proceeds from the Plano, Tex. department store chain's loan will be used for general corporate purposes, including letters of credit.

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