Microsemi Corp. is leading U.S. companies this week in seeking$7.69 billion in leveraged loans as investors seek the steepestdiscounts to buy the debt since the third quarter of 2009.

Microsemi, a maker of microchips for the aerospace and defenseindustries, is proposing to sell an $800-million term piece to backan acquisition at 97 cents to 98 cents on the dollar, reducingproceeds for the company and increasing the yield for investors.DigitalGlobe Inc. is willing to sell a $500 million financing at aprice as low as 97.5 cents.

Junk-rated borrowers are finding it more expensive to borrow inthe loan market after prices of the debt are poised to drop for twoconsecutive months. New issue loan volume for the month throughSept. 28 is $15.1 billion, less than half of the $30.5 billionborrowed during the same period in 2010, according to Standard& Poor's Leveraged Commentary & Data.

“Since early August, the market's been focused on committedsupply versus where the demand's coming from on the loan side,”Timothy Broadbent, head of leveraged-loan syndicate for theAmericas at Barclays Capital, the investment banking unit ofBarclays Plc, said in a telephone interview. “There's enough cashto take down the committed supply, it's just a question of priceand whether it will all clear.”

The average original-issue discount needed to sell the loans isat 96.9 cents on the dollar as of yesterday, down from 98.7 centslast September, and the most since the third quarter of 2009's 96.7cents, according to S&P LCD.

Go Daddy Loan
Go Daddy Group Inc. this weeksold a $750 million term loan to support its leveraged buyout byKKR & CO., Silver Lake Partners and Technology CrossoverVentures after it increased the original-issue discount to 93 centson the dollar from 96 cents initially proposed.

Barclays Plc, Deutsche Bank AG, Royal Bank of Canada, KKR andGoldman Sachs Group Inc. arranged the Scottsdale, Arizona- basedcompany's loan with an interest rate of 5.75 percentage points morethan the London interbank offered rate and a 1.25 percent floor onthe lending benchmark, Bloomberg data show.

“Everybody would much rather move risk, even if that meanslosing a little money,” Broadbent said. “This is nowhere near aspainful as the crisis days.” The average institutionaloriginal-issue discount during the fourth quarter of 2008 was 94.9cents, according to S&P's LCD.

Education-software maker Blackboard Inc. sold a $780 millionfirst-lien portion of a financing backing its buyout by ProvidenceEquity Partners Inc. at 92 cents on the dollar, compared with 96.5cents to 97 cents initially proposed. The debt pays six percentagepoints more than Libor with a 1.5 percent floor, Bloomberg datashow. The Washington-based company still hasn't sold anaccompanying $350 million second-lien slice.

'Flavor of the Month'
“The flavor of themonth is keeping the spread but lowering the OID,” Chief ExecutiveOfficer Leonard Tannenbaum of Fifth Street Finance Corp., which has$1.1 billion of assets, said in a telephone interview. “The goodthing about bringing the OID down is you don't get refinanced. Ifyou're buying at 92, you're not going to get refinanced at 103 or102 in a year.”

Investors pulled $117 million from funds that buy floating- ratebank debt for the week ended Sept. 21, down from outflows of $324million the week ended Sept. 14, according to data from Cambridge,Massachusetts-based EPFR Global. Since August, floating-rate fundsrecorded $5.45 billion of outflows.

Loan Prices
The S&P/LSTA U.S. LeveragedLoan 100 index fell for the fifth time in six days, decreasing 0.10cent to 89.07 cents on the dollar yesterday. The measure, whichtracks the 100 largest dollar-denominated first-lien leveragedloans, has declined from 89.84 on Sept. 21, which was the highestsince Aug. 8. The index decreased to 87.47 cents on Aug. 26, thelowest level since December 2009.

Microsemi, based in Irvine, California, is proposing to payinterest on an $800 million term loan of 4.25 percentage points to4.5 percentage points more than the London interbank offered rateand the lending benchmark will have a 1.25 percent floor, accordingto data compiled by Bloomberg. Microsemi may sell the debt dueFebruary 2018 at 97 cents to 98 cents on the dollar.

DigitalGlobe set interest at 4.25 percentage points to 4.5percentage points more than Libor on its $500 million term loan.The debt has a 1.25 percent floor on the lending benchmark.Longmont, Colorado-based DigitalGlobe is proposing to sell the debtat 97.5 cents to 98 cents on the dollar, according to data compiledby Bloomberg. Morgan Stanley and JPMorgan Chase & Co. arearranging the transaction.

Flexera Deal
Business software managementcompany Flexera Software Inc. is seeking $330 million in loans tofinance its acquisition by Ontario Teachers' Pension Plan. Thecompany may sell a $230 million first-lien piece at 96 cents to 97cents on the dollar, compared with 98 cents initially proposed,according to data compiled by Bloomberg. Flexera may pay sixpercentage points to 6.25 percentage points more than Libor with a1.25 percent floor.

Schaumburg, Illinois-based Flexera may sell a $100 millionsecond-lien portion at 92 cents to 93 cents on the dollar, comparedwith 98 cents initially offered. The debt may pay 9.75 percentagepoints to 10 percentage points more than Libor, with a 1.25 percentminimum.

“There are a lot of middle market, smaller deals and they'regetting priced pretty tight relative to the bigger deals,” saidTannenbaum, whose Fifth Street has about $400 million to deploy.“We see a very full pipeline going to the end of the year. It'sgoing to be a really nice time for those with capital to put it towork.”

Bloomberg News

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