Cumulus Media Joins $6 Billion M&A Pipeline as Leveraged-Loan Prices Drop

Cumulus Media Inc. (CMLS) set the interest rate this week on a $2.04 billion leveraged loan it’s seeking to support the acquisition of Citadel Broadcasting Corp., as U.S. companies seek at least $5.73 billion of loans to back buyouts.

Diamond Foods Inc. (DMND), the packaged foods company that is acquiring Procter & Gamble Co.’s Pringles chip operations, received commitments this week for $2.05 billion to fund the transaction.

Global mergers and acquisitions have increased 27.5 percent this year compared with 2010, driving companies to the leveraged-loan market to arrange financing for the deals, according to data compiled by Bloomberg. Loans backing buyouts last month increased to 23.4 percent of all new transactions, up from 9 percent in April, Bloomberg data show.

“There are a ton of deals on the sidelines waiting for the market to stabilize, so there won’t be a huge pause in new deals if the market comes back even moderately,” said Marc Gross, who helps oversee $3 billion in fixed-income funds as a money manager at RS Investments in New York. “The big guys want to launch deals and they’ll be coming fast and furious once the market stabilizes.”

Cumulus is offering prospective lenders 3.75 percentage points to 4 percentage points more than the London interbank offered rate, with a 1.25 percent minimum to the lending benchmark, according to Bloomberg data. The JPMorgan Chase & Co.-led transaction includes a $375 million five-year revolving line of credit.

Cumulus is buying Citadel in a deal worth $2.4 billion, the Atlanta-based company said in a March 10 statement. Citadel shareholders can choose $37 in cash or 8.525 Cumulus Class A shares for each share they own.

Greek Contagion

Indications that the expansion of the world’s largest economy has slowed and fears of the contagion effect caused by a possible Greek default have made investors more risk averse. Companies had to sweeten the terms on at least three deals this week in order to attract sufficient lender interest.

Lawson Software Inc. (LWSN), a global provider of business software that is being acquired by Golden Gate Capital Corp. and Infor Global Solutions, boosted the interest rate on a $1.04 billion term loan it’s seeking to fund the buyout by 50 basis points, according to a person with knowledge of the deal.

‘Reluctant’ To Commit

Husky International Ltd., the Onex Corp (OCX).-owned supplier of equipment and services to the plastics industry, increased the interest rate on a $920 million term loan to back its buyout by as much as 100 basis points, according to Bloomberg data.

Greece is definitely a concern and headlines are going to move the market,” said RS Investments’ Gross. “People are reluctant to commit money and if they want to commit money then they want a little sweetener there.”

Loan prices have fallen for seven weeks, the most consecutive weekly drops since February 2007. The Standard & Poor’s/LSTA Leveraged Loan 100 Index fell 0.07 cent yesterday to 93.96 cents on the dollar. The index is up from a low of 59.2 cents on Dec. 17, 2008, three months after Lehman Brothers Holdings Inc. collapsed.

Lenders are also demanding more yield to fund loans. Pricing for debt rated B+ or B rose to 5.89 percentage points as of yesterday from 5.35 percentage points in May, according to Standard & Poor’s Leveraged Commentary & Data. The average all- in spread -- which includes upfront fees amortized over an assumed three-year life and Libor floors --was at a record low of 2.14 percent in February 2007 as the buyout boom was peaking.

Fed Lowers Forecasts

This week Fed officials lowered their forecasts for growth and employment this year and next, projecting the economy will expand 2.7 percent to 2.9 percent in 2011, down from forecasts ranging from 3.1 percent to 3.3 percent in April.

“In these difficult and uncertain times, the Federal Reserve Chairman appears to wield less rhetorical influence over increasingly skeptical financial markets,” John Lonski, chief economist at Moody’s Capital Markets Group in New York, wrote in a report yesterday. “Neither June 22’s FOMC policy statement nor Ben Bernanke’s press conference was well received by financial markets.”

European Central Bank President Jean-Claude Trichet warned June 22 in Frankfurt that risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks.

To contact the reporter on this story: Richard Bravo in New York at rbravo5@bloomberg.net.

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

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