Enron in the news?  Did you see the articles in the Times?  I saved them in case you were in the air and missed them.

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Date: Mon, 26 Nov 2001 17:42:54 -0500
From: LPC <LPC@loanpricing.com>
Subject: This week's USLoanMarketPulse: A weekly wrap-up of news
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November 26, 2001

Usage at default: The newest weapon in the battle for rational
pro rata

Following the blowout on Compass Mineral's B term loan, institutional hot money
may be back - at least for the right credits. While this is a very, very good thing for the
continuation of the leveraged loan market, the question remains whether it is a good
thing for pro rata lenders already suffering from a risk/return mismatch.
A
 n oversubscription in the primary market is big news considering the past two
months: Following the events of September 11, prices on transactable loans in the
secondary market tumbled and investors found secondary yields to be far more
rewarding than those in the primary market.

Suddenly, loans in the primary market could not get done. This realization was
followed by a rash of upward flexes, original issue discount loans and LIBOR floors.
The focus was squarely on fixing the "institutional problem"; the "pro rata problem"
was hardly discussed.

But despite taking a backseat in lender discourse, the pro rata problem remains.
Even as institutional appetite fell by the wayside and struggling deals increased their
pro rata tranches at the expense of floundering institutional facilities, the economics
of lending remain skewed away from banks.

That is not to say that pro rata syndication technology has not evolved: Revolvers have
been shrunk to their absolute minimum. And while rumors of its death may be
exaggerated, the term loan A has almost been dropped from the pro rata equation
and replaced with a term loan B that can be sold to both banks and institutions.

U.S. bank deals to watch

THAT SINKING FEELING

Enron Corp.'s (BBB-/Baa3 Sr. Unsec. Debt; Neg. CreditWatch) growing woes
provided much food for thought before an abridged work week headed for the
Thanksgiving holiday. News of an impending debt repayment of $690 million
pummeled last week not only the value of outstanding Enron debt, but it also
highlighted growing doubts about its takeover by Dynegy Inc. Simply put, a default by
Enron on its debt obligations would leave many lenders sitting on a sizable chunk of
bad debt. For the bank loan market, Enron's quagmire poses rather unpalatable
scenarios. Of course for some banks there will be pressure to hold on to their
exposure, but for many others the challenge will be to find a tolerable market clearing
price that will allow them to shed their exposure.

A LEVERAGED LOAN PIPELINE?

According to several market observers, the window to bring to market a new
leveraged deal (if one exists) is only going to be open for two more weeks at the
most. Therefore, claims by many bankers that the only thing keeping them busy
besides amendments and waivers are deals for 2002 sound extremely credible.
T
 ake for instance Northwest Natural Gas' $2.1 billion loan package backing its
acquisition of Portland General Electric. The deal promising $800 million
institutional paper is expected to hit market at the earliest by the second quarter of
2002 once regulatory approval is in hand. The lead banks have already firmed the
deal structure and are in the process of rounding up pro rata support. The $2.1 billion
package will be distributed at both the holding and operating company level of the
combined NW Natural/PGE entity. At the holding company level, which is expected to
be rated investment grade or near-investment grade, the facilities total $1.65 billion,
including a six-year pro rata deck, split into a $100 million revolver and a $300 million
term loan A. The remainder of the holdco facilities is an $800 million institutional
deck, split into a $500 million, 7.5-year term loan B and a $300 million, 8.5-year term
loan C. The balance of the holdco deck is a $450 million capital markets facility. The
remainder of the financing package will be at the operating company level, which is
expected to retain a full investment grade profile. This $450 million deck runs for six
years and consists of a $150 million revolver for NW Natural and a $300 million
revolver for Portland General.

IN THE MEANTIME

Before the year fizzles out, there will be some deals too keep an eye open for.
Besides a prospective refinancing for Paragon Trade Brands, a new deal is rumored
for media concern Fisher Communications. On the high-grade front Pitney Bowes
soon is expected to approach its banks for a reduced rollover, while mortgage lender
Countrywide Funding preps a $4 billion refinancing package with a sizable multi-year
revolver.

--------------------------------------

High-Yield Bonds

Junk bond mutual funds summoned $628.5 million of new cash in the week ended
Tuesday, according to AMG Data Services, sending the funds about $700 million
above their pre-attack levels. The funds lost nearly $1.6 billion of investment in the
weeks following the terrorist attacks before registering their first uptick in
mid-October.

Heavily indebted cosmetics giant Revlon Consumer Products sold an upsized $363
million issue of four-year senior notes (Caa1/B-), helped along by a 920 bps spread
over Treasuries attracted enough investor attention to raise the sale from an original
$250 million, but bank sources declined to say how well books were filled out.

Meanwhile, books on the Veterinary Centers of America's $170 million note sale
were nearly seven times subscribed, directly contrasting the concurrent and
foundering $182 million IPO. The size of the Goldman Sachs-led sale was increased
from $150 million of the 144A senior subordinated notes (B3/B-) at pricing.
T
 he eight-year issue, sold under the company's Vicar Operating subsidiary, priced to
yield 502 bps over Treasuries.

Forward calendar volume appears to be building with bank sources indicating that
the endgame for 2001 is going to be fairly busy, especially as compared to the fourth
quarter's sluggish performance so far. Ingles Markets heads out on the road
tomorrow with a $200 million deal with Radiologix, Huntsman Corp., Nextel Partners
and Tommy Hilfiger soon to follow, sources say.

Deutsche Bank has the mandate for a $250 million placement for television station
operator Young Broadcasting, but the deal is subject to a successful consent
solicitation that expires tomorrow at 5 p.m.

Majestic Star Casino and Global Auto Logistics still are on the road, with pricing
expected this week.

-----------------------------------

Secondary

Last week's holiday-shortened period produced scant trading activity. As new issue
flow continues to disappoint, the secondary market necessarily remains focused on
outstanding supply. Recently, dealers have had their hands full with paydown
situations.

THE FLAVOR OF THE WEEK: LYONDELL

Lyondell Chemical's term loan E spiked roughly three points last week to change
hands near par in retail trading on Wednesday, according to sources. The surge was
sparked by word of a proposed $750 million senior secured note offering slated to
repay the bulk of the TLE outstandings, as well as all of the company's remaining
TLB, sources add.

The TLE, however, is non-call until next May, when the call opens at 102 (the call
steps down to 101 in 2004 and the facility is callable at par thereafter), and therefore
a paydown would require an amendment to the credit agreement unless Lyondell
were to solicit a tender offer - a popular bond market method that has never been
employed in the syndicated loan mart, according to sources.

Today, dealers are quoting Lyondell's TLE in the roughly 100-101 range, with
speculation buzzing that the company may try to pay down most or all of the $800
million-plus tranche in the 101 area. As cyclical worries hit chemical credits in
September, Lyondell's TLE dipped as low 93 in street trading - more than 11 points
off its impressive 104.125 high set last year. As of early last week, however, bids had
strengthened soundly into the mid-90s, as dropping oil prices stirred up some hope
for the beleaguered chemical industry.

The prior week's paydown play, Allied Waste, held strong last week, as a small slug
of B/C traded last Monday at 99. Today, with nearly 20% of the company's term debt
set to be repayed, Allied's B/C paper traded up to 99.125+, as a $2.5 million and $3.7
million stub changed hands in the street.

Allied's second senior note offering of the year upsized on Nov. 15 to $750 million,
and is expected to take out nearly 20% of the company's A, B and C term loans,
leaving roughly $3 billion of term debt outstanding.

On the stressed side, after trading in the high 70s early the week prior, Xerox Corp.'s
bank debt changed hands as high as 87 last Tuesday, in reaction to an
announcement the previous Friday that the company intends to repay existing debt
with proceeds from a now $900 million (up from an initial $500 million) convertible
trust preferred securities offering. The sale will help shore up Xerox's balance sheet,
and will offer some cushion against a possible loan covenant violation, sources note.

-----------------------------------

Middle Market

"It's never been more dead," said one source achingly, while hopefully anticipating a
better deal flow for next year. Across the hall at the workout desks, however, activity is
ripe with action. The source added dryly, "Those guys, meanwhile, are busy
amending deals and scrutinizing collateral."

The time is not ripe for any one particular type of deal that could potentially have
investors salivating. But amidst the syndication melee, some deals have managed to
cross the "scary" hurdles. San Diego, Calif.-based Harvest Meat Co. closed a $40
million asset-based revolver with TransAmerica Business Capital. The credit has a
$6 million sublimit for letters of credit and includes a $750,000 fixed asset real estate
term loan.

The five-year revolver is priced at LIB+200. The term loan - which is non-amortizing for
the first 18 months - is priced at LIB+275, with a 175 bps LC fee. Closing fees are
$100,000, and there is a 37.5 bps commitment fee on the revolver.

Fleet Capital, meanwhile, has provided a $75 million asset-based credit backing the
buyout of Houston-based Igloo Products Corp. by Westar Capital.

Westar, a private investment firm that also owns Del Monte Foods, home healthcare
firm Apria Healthcare and Doskocil Manufacturing, is purchasing the Igloo Products
unit from Lake Forest, Ill.-based Brunswick Corp.

As with the previous two deals and the Nutraceutical International deal, security is
paramount. Nutraceutical's recently-launched $60 million, five-year credit with sole
lead arranger and administrative agent Rabobank is secured by substantially all of
the company's assets, sources noted.

Opening pricing is at LIB+175 for the first 90 days. At that time, pricing switches to an
undisclosed leverage-based grid. The commitment fee on the revolver is 35 bps.
Commitments are due by Nov. 30, with the lead seeking $15 million and $10 million
tickets from a small group consisting largely of the company's existing bank group.




COPYRIGHT NOTICE: This news story is Copyright 2001 by Loan Pricing Corporation. Any
reproduction or retransmission of this story - via fax, photocopy or electronically - is a violation of Federal and International Copyright Laws. Contact LPC at (212) 489-5455 (New York) or 207 542-7520 (London) for information on additional LoanConnector tokens.


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