Level 3 allocates, softens in secondary; Metaldyne prices, firms; CLO issuance in record territory

By Paul A. Harris

Portland, Ore., Oct. 10 – The new issue market has been quiet for the past fortnight, according to a bank loan portfolio manager. And it's apt to stay that way for a while, which means the secondary market should pick up, the source added.

Outflows of cash from retail accounts probably don't help, said the investor.

Most recently, the market heard that dedicated bank loan funds tallied $825 million of outflows for the week to Wednesday. That represents about 15% of the market, the manager said.

“So outflows are not moving the market because CLO demand is propping it up,” he said.

“The CLO market is particularly active right now. It just set an all-time record for yearly issuance at $97.11 billion year to date, so CLOs are filling in the gap left by those retail outflows.”

Other possible factors serving to constrict the market include a restraining influence on the part of bank regulators.

And the poor performance of high-yield bonds is also a damping force, the portfolio manager said.

The LCDX 22 index of bank loan credit default swaps closed at 102¾ bid, 103¼ offered, down ¼ of a point on the day, according to a hedge fund manager.

New issues were a mixed picture.

Level 3 Financing Inc. upsized its senior secured term loan B due in 2022 to $2 billion from $1.5 billion and priced the deal with a 350 basis points spread to Libor and a 1% Libor floor at 99.25, according to a trader.

However, upon entering the secondary market the deal was seen drooping at 99 1/8 bid, 99 5/8 offered.

Meanwhile, Metaldyne LLC priced its upsized $1.35 billion Libor plus 350 basis points seven-year term loan at 99.50. The deal allocated and traded up to 99¾ bid, par ¼ offered.

Level 3 upsizes

Level 3 upsized its senior secured term loan B due in 2022 to $2 billion from $1.5 billion and priced the deal with a 350 basis points spread to Libor and a 1% Libor floor at 99.25, according to a trader.

The price came rich to initial discount talk of 98.50 to 99.

Upon entering the secondary market, the deal was seen at 99 1/8 bid, 99 5/8 offered.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. Morgan Stanley Senior Funding Inc., Barclays, Goldman Sachs Bank USA, Jefferies Finance LLC and J.P. Morgan Securities LLC are the lead banks on the deal.

The loan has 101 soft call protection for six months.

Proceeds will be used to help fund the purchase of tw telecom inc. for $10.00 cash and 0.7 shares of Level 3 common stock for each share of tw telecom common stock that is owned at closing. The stock-and-cash transaction is valued at $40.86 per share, or about $7.3 billion, including the assumption of roughly $1.6 billion of net debt as of March 31.

For the 12 months ended March 31, the combined company had pro forma revenue of $7.9 billion and adjusted EBITDA of $2.2 billion before synergies and $2.4 billion including expected run-rate expense synergies.

Closing is expected in the fourth quarter, subject to regulatory approvals, stockholder approvals at both companies and customary conditions.

Level 3 is a Broomfield, Colo.-based fiber-based communications services. tw telecom is a Littleton, Colo.-based provider of managed data, internet and voice networking services to businesses and large organizations.

Metaldyne trades up

Metaldyne priced its upsized $1.35 billion Libor plus 350 basis points seven-year term loan at 99.50, a market source said.

The deal allocated and traded to 99¾ bid, par ¼ offered.

The loan has 1% Libor floor and 101 soft call protection for six months.

The deal was upsized from $1.25 billion and downsized, and the concurrent bond deal was downsized to $600 million from $700 million.

The company’s 1.6 billion credit facility (Ba3/BB+) also includes a $250 million five-year revolver.

Goldman Sachs Bank USA, Deutsche Bank Securities Inc., Bank of America Merrill Lynch, Morgan Stanley Senior Funding Inc., Nomura, KeyBanc Capital Markets LLC and RBC Capital Markets LLC are the lead banks on the deal.

Proceeds from the credit facility and bonds will be used to refinance existing debt.

Metaldyne is a Plymouth, Mich.-based manufacturer of highly engineered metal-based components for engine, transmission, and driveline applications in the automotive and light truck markets.

Verteullus plans $455 million

Vertellus Specialties Inc. plans to launch a $455 million term loan B in the week ahead, according to a market source.

The deal, via Jefferies, is coming with a 900 basis points spread to Libor and a 1% Libor floor at 98 OID.

There are hard calls starting at 104 and declining to 102.5 and 101.

Vertellus is an Indianapolis-based provider of specialty chemicals.

TOMS sets pricing

TOMS set pricing on a $300 million six-year term loan B at Libor plus 475 basis points with a 1% Libor floor at 99. The loan has 101 soft call protection for six months.

Commitments are due on Oct. 23.

Jefferies Finance LLC is the lead on the deal.

In addition to the term loan B, the company is getting a $60 million ABL facility, the source said.

Proceeds will help fund the purchase of a 50% interest in TOMS by Bain Capital. The company’s founder and chief shoe giver, Blake Mycoskie, will remain a 50% owner.

Pro forma leverage is about 4.2 times and net leverage is about 4 times, the source added.

TOMS is a shoe, eyewear and coffee company that matches every purchase with a charitable donation.

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