Blackstone Increases Size of Emdeon Buyout Loan as Prices Rise

Blackstone Group LP increased the size of a leveraged loan it’s seeking to finance an acquisition of Emdeon Inc. by $24 million to $1.224 billion and set the interest rate at the low end of the range it had offered investors.

The lower rate means that the provider of billing systems and software for health-care companies will pay $3 million less in annual interest payments, according to data compiled by Bloomberg. Prices of leverage loans rose 1.48 cents this week to 89.28 cents yesterday, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index.

Companies with stronger credit profiles are still able to attract investor dollars even as leverage-loan issuance in the U.S. fell 57.5 percent in the third quarter, according to S&P’s Leveraged Commentary and Data. Concerns that Europe’s sovereign debt crisis could hamper the economic recovery have roiled global markets and caused lenders to shun riskier asset classes such as loans and high-yield bonds.

“You’re seeing a bifurcated market now,” Darin Schmalz, a director at Fitch Ratings in Chicago, said yesterday in a telephone interview. “If you’re a good quality credit there is going to be demand for your paper. The attributes that make this asset class attractive are still present and that hasn’t gone away despite the fact that we’re still facing macroeconomic issues both in the U.S. and globally.”

The S&P/LSTA Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, is up from a low of 59.2 cents on Dec. 17, 2008, three months after Lehman Brothers Holdings Inc. collapsed. The index fell 5.66 percent in August, the biggest monthly decline since Nov. 2008.

Leveraged loans and high-yield bonds are ranked below Baa3 by Moody’s and less than BBB- by S&P.

New Issue Sales

New issue sales fell to $50.6 billion in the third quarter from $119 billion in the three-month period ended June 30, according to S&P’s LCD. Year-to-date issuance of $310.8 billion outpaces last year’s $233.4 billion figure.

Emdeon is offering investors 5.5 percentage points more than the London interbank offered rate on the $1.224 billion term loan B, with a minimum 1.25 percent on the benchmark lending rate, according to Bloomberg data. The loan is expected to price at 97 cents on the dollar, reducing proceeds for the company and boosting the yield to investors.

Emdeon’s Banks

Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc. and SunTrust Banks Inc. are arranging the deal for the Nashville, Tennessee-based company, Bloomberg data show.

The loan will contain a first-lien net leverage covenant after it was originally marketed to investors without financial maintenance provisions, said the person. The banks plan to distribute the debt to investors today and close and fund the deal Nov. 2.

A term loan B is mainly bought by non-bank lenders such as collateralized loan obligations, bank-loan mutual funds and hedge funds. In a revolving credit, money can be borrowed again once it’s repaid; in a term loan, it can’t.

“We think the credit markets reflect a binary outcome, with markets either improving in response to increased stability in Europe or deteriorating further in the face of a disorderly resolution of Greece and/or other peripherals,” Brad Rogoff, head of U.S. credit Strategy at Barclays Capital, wrote in an Oct. 7 report. “While the focus remains on the sovereign debt crisis, macro data in the U.S. continue to come in mixed, and recessionary fears are growing, given the slower growth trajectory.”

‘Downside Risks’

The Federal Reserve said Sept. 21 that it saw “significant downside risks” in the economy and it will replace $400 billion of short-term debt with longer-term Treasuries to try to increase growth as the economic recovery slows down.

Slovakia approved Europe’s enhanced bailout fund yesterday, which completes the ratification across the 17 euro countries. European Commission President Jose Barroso on Oct. 12 called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to ease debt woes.

The number of U.S., European and emerging market and other developed region issuers downgraded by Standard & Poor’s in the third quarter outpaced the number of upgrades, analysts led by Diane Vazza wrote in a report yesterday. The downgrade ratio, or the number of downgrades per total rating actions, is below historical averages in all regions except emerging markets.

“Demand can go in and out pretty quickly,” Fitch’s Schmalz said. “What you saw in the third quarter was a lot of the deals got larger pro rata tranches, meaning revolver and term loan As, to cater specifically to that bank loan market.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE