Nextel's proposed amendment for unconventional paydowns may keep paper below 101

By Sara Rosenberg

New York, Oct. 17 - Nextel Communications Inc. is currently in the market seeking an amendment to its credit facility that would allow the company to repay different tranches under its credit facility in any order, rather than on a pro rata basis, according to a trader.

Furthermore, under the proposed amendment, the company is also looking to increase its letter of credit basket, the trader added.

"That's what's going to keep Nextel from trading above 101 again," the trader said. "Obviously they would want to pay the B, C first. The A is at Libor plus 125 basis points; the B, C has a blended interest rate of Libor plus 350 basis points, 337 and 362 [for the B and C respectively]; and the D is at Libor plus 300 basis points."

Asked why the company doesn't just refinance its facility to get a lower interest rate, the trader responded: "And give up that 125 spread?

"The revolver also has a 125 spread. They should just draw down on the revolver and pay down all the term loans. That would really [tick] people off," the trader added jokingly.

On Friday the term loan B and the term loan C were quoted at par 5/8 bid, par 7/8 offered, and the term loan D was quoted at par ¼ bid, par ¾ offered.

The paper held steady from late Thursday levels. However, during the day on Thursday, the bank debt did head higher before coming back in with the term loan D hitting levels of par 5/8 bid, up from par ¼ bid, par ¾ offered, and the term loan B and term loan C hitting levels of 101 bid, up from par ¾ bid following the release of positive earnings news and a favorable conference call.

The Reston, Va. wireless company reported third quarter results that included income of $346 million, or $0.33 per share including debt retirement charges, revenue of $2.9 billion, a 27% increase over the previous third quarter, operating income before depreciation and amortization of $1.13 billion, up 29% from the same period last year, record quarterly subscriber additions of 646,000 and a reduction in net debt to under $9 billion.

Furthermore, the company raised its 2003 guidance, targeting free cash flow of $1 billion or more, up from $600 million, $1.15 or more in earnings per share, up from at least $1.00, operating income before depreciation and amortization of $4.1 billion or more, up from $3.9 billion and net subscriber additions (excluding Boost Mobile) of approximately 2.2 million, up from 1.9 million or more.

And, in a conference call that was held to discuss the earnings results, Nextel emphasized its commitment to achieving investment grade status through continued debt reduction.

Huntsman Corp.'s bank debt has been quoted all over the place since a new buyer came into the market late Thursday, according to a second trader, who placed the Salt Lake City chemical company's paper around 89 bid, 90 offered.

"It seems that there's a new buyer that emerged and it seems like everyone is trying to figure out where the guy bought it," the trader said. "People are fishing around the investment banks trying to see who did it."

Allegheny Energy Inc.'s second lien loan has moved down slightly over the past week or so to 99 bid, 99½ offered from 99 3/8 bid, par offered, according to a trader.

"There are some sellers. People just took their profits and ran. It probably traded as low as the mid-90s during the summer. They realized they bought it at lower levels and decided to move on," the trader explained.

Allegheny is a Hagerstown, Md. Energy company.

Another mover this week was Tyco International Ltd. Its bank debt moved up by about a quarter of a point. The 2004 paper was quoted at 99¾ bid, par offered and the 2006 paper was quoted at 99 5/8 bid, 99 7/8 offered.

"It was softer earlier in the week and at the end of last week," a trader said. "People are trying to put their money to use and this is short-term paper. I guess there's some market speculation about a refinancing."

"It's got a coupon and people are looking for paper," a second trader said regarding Tyco's small upward climb.

Tyco is a Bermuda-based diversified manufacturing and service company.

In the primary, DSW Waters LP, a joint venture between Groupe Danone and Suntory, held a bank meeting on Friday regarding a $500 million credit facility (B+), consisting of $400 million term loan B and a $100 million revolver. JPMorgan and Citigroup are the lead banks on the transaction.

Proceeds will be used to help support the joint venture between Danone and Suntory, which will operate the combined businesses of their subsidiaries, Suntory Water Group and the home office delivery business of Danone Waters of North America.

Under the terms of the agreement, which was first announced on Sept. 4, each company will have an equal ownership stake in the venture. The new management team will be comprised of executives from both firms' existing water operations, as well as new management. The closing of the transaction is subject to the satisfaction of customary conditions and is expected to close this fall.

Danone is a Paris-based producer of fresh dairy products and packaged water, biscuits and cereal products. Suntory is a Japan-based producer of alcoholic and non-alcoholic beverages.

The Pantry Inc. announced on Friday that it completed the acquisition of 138 convenience stores operating under the Golden Gallon name from Ahold USA, Inc. Golden Gallon for a purchase price of approximately $187 million.

The acquisition was structured as two simultaneous transactions with the real estate purchased and financed through a $94.5 million sale/leaseback transaction provided by Realty Income for 114 of the fee-owned stores, and the Golden Gallon operations and the balance of the real estate assets acquired for approximately $92.5 million. The second portion of the transaction was funded with $80 million of bank debt through an add-on to the company's existing first lien loans and cash on hand.

Originally, The Pantry was expected to obtain a $90 million credit facility, consisting of a $60 million first lien term loan B (B+/B1) with an interest rate of Libor plus 425 basis points and a $30 million second lien tranche (B-/B2) with an interest rate of Libor plus 650 basis points.

Wachovia Securities was the lead bank on the Sanford, N.C. convenience store retailer's acquisition financing deal.

"The Golden Gallon acquisition is another critical step in The Pantry's strategy of developing the premier southeastern convenience store chain with excellent geographic density and outstanding store facilities and locations," said Peter J. Sodini, president and chief executive officer, in a news release. "We are excited about this opportunity because Golden Gallon is a well established chain of stores in the greater Chattanooga, Tenn. market that is an excellent strategic fit for The Pantry with our existing 14 stores in the Nashville, Tenn. market and 56 stores in the Gainesville, Ga. market. Further, the Golden Gallon stores are attractive, high volume stores with a good mix of interstate and residential locations."

The Golden Gallon acquisition, which is leverage neutral to the company without incorporating any synergies, is expected to be significantly accretive, contributing approximately $0.40 to $0.45 to earnings per share for fiscal 2004.

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