1. Middle Market Weekly January 14, 2011 Thomson Reuters LPC
Fran Beyers Diana Diquez
January 14, 2011

2. Middle market 2010 institutional issuance of $26 billion is up 4 times year-over-year
Source: Thomson Reuters LPC

3. U.S. middle market term loan B yields in 4Q10 are lower than pre-crisis levels
Middle market term loan yields
Libor + Spread
Libor floor + Spread OID
Source: Thomson Reuters LPC

4. Yields range from 5.78% to 11.63% on middle market term loans in 4Q10
Yields on 4Q primary middle market term loans by purpose
REFIS
LBO/TAKEOVER
DIVIDEND
Source: Thomson Reuters LPC

5. After being spread equally in October and November, downward price flexes exceed upward price flexes in December
Middle market yield flexes
Source: Thomson Reuters LPC

6. Middle market yield premium on primary market deals tightens in December
Middle market and large corporate –avg. yields
Source: Thomson Reuters LPC

7. Single-B term loan yields contract in 4Q10 amid strong lender appetite
Overall market B rated term loan yields
Libor Spread
Libor floor Spread OID
On the back of strong investor demand, primary market yields are expected to continue to face further downward pressure in 1Q11.
The average yield for single B-rated term loan Bs, assuming a four-year to repayment, was 7.01 percent in 4Q10, significantly lower than the 8.5 percent recorded in 3Q10. Primary yields are even lower than pre-crisis levels that saw yields in the 7.5 percent area. Back then, however, the bulk of the yield came from an elevated Libor rate (5.36 percent in 2Q07), while a small proportion of the yield was derived from Libor spreads (215bp on average in 2Q07).
Last quarter, contractual spreads were a lot higher at almost 500bp on average. In addition to higher spreads, Libor floors and OIDs have provided a boost to primary yields.
However, the downward trend in Libor floors and the tightening in OIDs is expected to continue well into 1Q11. Investor appetite has remained strong on the back of a robust bond market, which continued to pour liquidity back into the loan market via bond-for-loan paydowns.
The institutional loan market ended 4Q10 on a high note, logging the highest quarterly issuance of the year at $66.5 billion and the pipeline in 2011 continues to build.
Source: Thomson Reuters LPC

8. Middle market loan volume reaches new all-time high at $58 billion in 4Q10
Overall middle market loan volume
Middle market loan volume exploded in 4Q10 for both the sponsored and non-sponsored markets.
Total issuance hit a new record of $58 billion, surpassing the previous record of $57.3 billion seen in 2Q07.
Non-sponsored loan volume of $36.2 billion showed 65 percent quarter-over-quarter growth as issuers finally returned to the market to take advantage of favorable terms from hungry banks after holding off on refinancings for many quarters.
Non-sponsored lenders say issuers are finally starting to modestly increase utilization levels under bank lines and are having M&A and capex conversations again with their bankers.
Sponsored loan volume was also impressive at $21.9 billion, the second-highest quarter on record behind 2Q07 issuance of $24.1 billion. Sponsors rushed to close deals before the expiration of the Bush tax cuts and took advantage of strong demand from both banks and institutional investors.
LBO volume amounted to $6.5 billion, growing 31 percent over 3Q10 levels. Lenders are optimistic that M&A activity will be the primary driver of sponsored loan growth in 2011.
Middle market dividend recap volume hit an all new record of $4.4 billion. While it may be hard to shatter that record going forward, lenders anticipate that dividends will continue to remain a prominent theme in 2011.
Source: Thomson Reuters

9. Recent LoanConnector Middle Market Highlights
Flexera Software bumps up pricing on TL
Flexera Software has flexed up pricing on its $200M, six-year term loan B to LIB+575 from LIB+525
In addition, the term loan now has 102, 101 soft call protection
The corporate family and facility ratings are both B2
The 1.75 percent Libor floor and 98 OID are unchanged
Barclays Capital and RBC Capital Markets lead the deal, which also includes a $15M, five-year revolving credit
Net total leverage is 3.9 times
Proceeds will be used to pay a dividend and refinance debt
Windsor Quality Food sets price talk on TL
Price talk on Windsor Quality Food Co's $250M, six-year term loan B is LIB+400 with a 1.5 percent Libor floor and a 99 OID
The corporate family and facility ratings are both B1
JP Morgan launched the $450M loan this week. It backs the company's acquisition of Discover Foods
The loan includes a $60M, five-year revolving credit, a $140M, five-year term loan A and the $250M, six-year term loan B
Windsor is a manufacturer of branded and private label frozen foods to the foodservice, retail grocery and club, national account and industrial segments of the food industry
CPI launches buyout loan, sets price talk
Price talk on Communications & Power Industries Inc's (CPI) $180M loan is LIB+450 with a 1.75 percent Libor floor and a 99 OID
Commitments are due Jan. 27 and closing is targeted for Feb. 11
UBS launched the loan this week. It consists of a $30M, five-year revolving credit and a $150M, six-year term loan
Proceeds are to back the company's buyout by Veritas Capital
Source: LoanConnector

10. Recent LoanConnector Middle Market Highlights
Morgan Stanley Credit Partners closes first dedicated corporate mezzanine fund
Morgan Stanley Credit Partners has raised $956M in capital commitments for its first dedicated corporate mezzanine fund, Morgan Stanley Investment Management announced this week
Morgan Stanley Credit Partners invests in the debt securities of middle market and upper-middle market companies across leveraged buyouts, debt refinancings, recapitalizations, and acquisitions in a broad range of industries.
To date, the fund, has invested more than $160M in five portfolio companies
Signal Int'l taps for debut loan
Signal International is tapping the market for an $80M credit facility, marking its debut in the syndicated loan market
According to sources, Regions Bank is lead arranger. Only a few banks are invited which include existing lenders
Proceeds are to refinance and consolidate Signal's existing lines of credit
Houghton sets price talk on loan
Price talk on Houghton International's $315M, six-year term loan is LIB+500 with a 1.75 percent Libor floor and a 98.5 OID
The deal also has 101 soft call protection
Deutsche Bank, Bank of Ireland and GE Capital launched the loan this week
The deal also includes a $50M revolving credit
Proceeds will be used to refinance Houghton's existing bank debt and to fund the acquisition of Shell's metalworking and rolling oil (MWO) business
The corporate family rating is B2, while the facility rating is B1
Harvey Gulf surfaces with $300M facility
Harvey Gulf International Marine Corp is prepping a $300M credit facility, sources said. A bank meeting is set for January 27
BNP Paribas leads the deal. Regions Bank is on the right
Proceeds are to take out individual financings that backed the construction of three vessels and to consolidate with an existing syndicated credit facility, according to sources
Source: LoanConnector

11. Recent LoanConnector Middle Market Highlights
Ares in market with $402M CLO
Bank of America Merrill Lynch is arranging a $402M for Ares Management
Leverage is said to be close to eight times.
The tranching on the Ares XVI CLO is as follows:
Rating Amount
AAA $260M
AA $21M
A $35M
BBB $22M
BB $18M
Sub notes $46M
Fraser Sullivan tightens price talk on BBB and BB CLO tranches
Citi has tightened price guidance on the BBB and BB tranches of Fraser Sullivan's $400M CLO, sources said. The tranches now carry guidance of LIB and LIB+600, respectively
Earlier, price guidance on the BBB and BB tranches was LIB and LIB , respectively. Price guidance on the other tranches was unchanged
Price guidance is now as follows:
Tranche Rating Amount Price guidance
A Aaa/AAA $273M LIB
A Aa2/AA $13.5M LIB+250
B A2/A $31.1M LIB
C Baa2/BBB $15M LIB
D Ba2/BB $19M LIB+600
Sub notes NA $51.075M
Mueller Industries preps $350M refi
Mueller Industries is seeking a $350M loan to refinance debt
The deal is expected to launch in early to mid February
Bank of America is lead left. SunTrust and Regions Bank are on the right
Source: LoanConnector

12. Additional Headlines This Week
FOR DETAILS ON BELOW STORIES, CHECK OUT LOANCONNECTOR (
Loan funds see inflows of $951.4M, HY funds see inflows of $569.3M
Attachmate readies $1.09B acquisition loan for Jan. 19
CityCenter first lien notes upsized by $400M, term loan downsized
CommScope loan breaks in 102 context
Thermo Fisher Scientific unveils $1.5B unsecured loan for acquisition
Axcan outlines financing for Eurand buy
DirecTV tunes in for $2B RC
Pricing out on Disney $2.25B refi
Terms emerge on Booz Allen $1.3B deal
Cliffs Natural Resources nets bridge financing for acquisition
Playboy scores $180M loan backing bid to take co. private
Nielsen to raise $1.5B, more buyout IPOs ahead
Source: LoanConnector