Bloomberg News

Prestige Brands Proposes Acquisition Loan Rates as Prices Climb

January 23, 2012

Jan. 20 (Bloomberg) -- Prestige Brands Holdings Inc. leads borrowers this week in proposing terms on about $2 billion of loans, increasing the supply of new debt as prices reach a five- month high.

Prestige, based in Irvington, New York, is offering lenders 4.5 percentage points more than the London interbank offered rate on a $620 million term loan backing its purchase of 17 over-the-counter-medicine brands from GlaxoSmithKline Plc, according to data compiled by Bloomberg. Borrowers seeking funds in the U.S. market include Germany’s biggest cable operator, Kabel Deutschland Holding AG, and Belgian chemical producer Taminco Group NV.

European Union governments are setting tougher rules on budget deficits amid speculation that the region’s deepening crisis will shut markets to even the safest borrowers. Prices of leveraged loans in the U.S. rose during 11 of the last 12 trading sessions this year amid signs that an improvement in the U.S. job market may help bolster spending.

“Issuers and the banks recognize there is demand in the U.S.,” said Greg Stoeckle, the New York-based head of Invesco Ltd.’s bank-loan business. “The new-issue market does seem to be heating up a little bit.”

Kabel has offered to pay lenders 3.25 percentage points more than Libor on a $500 million term loan that will be used to refinance debt, according to data compiled by Bloomberg. It has 1.73 billion of euro-denominated loans ($2.23 billion) maturing through 2014, including 207 million euros this year, Bloomberg data show.

Trouble in Europe

“The European banks would likely have trouble being there for them,” said Jonathan Insull, a money manager in New York at Crescent Capital Group, which oversees about $9 billion of speculative-grade debt. “It kind of tells you just how bad things must be there.”

Taminco, based in Ghent, Belgium, is also seeking to borrow in U.S. dollars, proposing an interest rate of 5 percentage points more than Libor on a $350 million loan backing its buyout by Apollo Global Management LLC, Bloomberg data show.

Sales of new leveraged loans in Europe are poised to fall as much as 48 percent this year to 25 billion euros to 30 billion euros, according to forecasts by credit strategists at Deutsche Bank AG and Barclays Capital, as the region combats its sovereign debt crisis.

European Central Bank President Mario Draghi said yesterday that this year will be “much better” for the euro area as governments push ahead with fiscal reforms and the region benefits from the ECB’s flood of cheap cash. Greece’s government is in talks with private creditors to reach an agreement to slash the nation’s debt and avoid an economic collapse.

Price Rally

Borrowers are turning to U.S. leveraged loans as prices in the secondary market come off their longest winning streak in 14 months. Leveraged loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P.

The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index rose for a third-straight day, gaining 0.11 cent to 92.38 cents on the dollar. The measure, which tracks the 100 largest dollar- denominated first-lien leveraged loans, reached the highest level since Aug. 5.

Applications for unemployment insurance payments plunged by 50,000 to 352,000 in the week ended Jan. 14, less than forecast and the fewest since April 2008, according to data from the Labor Department issued yesterday in Washington. Other reports showed consumer prices were little changed in December for a second month and builders started work on the most single-family houses in more than a year.

‘Spending Cash’

“People have been spending cash,” said Insull. “If we don’t get a lot of bond-for-loan take-outs, I think loan spreads will remain range-bound.”

The average spread for newly issued, first-lien institutional loans was 5.04 percentage points more than lending benchmarks as of Jan. 19, according to S&P’s Leveraged Commentary & Data. That compares with a margin of 4.9 percentage points in December.

Demand for loans is weak among retail investors this month even as prices of the debt rose in secondary trading. U.S. floating-rate funds, which buy leveraged loans, had $22.5 million outflows during the week ended Jan. 11 and $33.6 million of withdrawals the week before, according to EPFR Global.

“There’s still a pretty strong level of risk aversion out there,” said Insull, adding that investors remain concerned that a spillover from a recession in Europe could lead to a spike in U.S. defaults.

--With assistance from Sho Chandra and Robert Willis in Washington. Editors: Faris Khan, Chapin Wright

To contact the reporter on this story: Christine Idzelis in New York at cidzelis@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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