Reliant Resources plummets four points on the bid side as company reports losses

By Sara Rosenberg

New York, Aug. 12 - Reliant Resources Inc.'s bank debt fell several points Tuesday following the company's release of disappointing second quarter numbers. Although the company did reveal a plan for cost reduction, market participants were unenthused, focusing mainly on the net losses.

The paper was quoted at 86 bid, 88 offered by the end of the day, down from 90 bid, 91 offered, according to a trader.

"The bonds fell a lot more than that, so it's not so bad," the trader added.

For the quarter, Reliant reported a loss from continuing operations of $28 million, or $0.09 per share, compared to income from continuing operations of $122 million, or $0.42 per share, for the same period of 2002. The loss was attributed primarily to reduced earnings from the company's retail segment, weak wholesale earnings and an increase in interest expense and amortization of financing costs from the $5.9 billion refinancing on March 31.

For the first six months of 2003, the Houston electric and energy company reported a loss from continuing operations of $74 million, or $0.25 per share, compared to income from continuing operations of $203 million, or $0.70 per share, for the same period of 2002. In addition to the second quarter factors, the first half loss reflected weaker results from the wholesale segment in the first quarter compared to the same period in 2002 and increased interest expense.

In addition to the second quarter numbers, the company announced a cost reduction plan, which is anticipated to reduce annual operating expenses by approximately $140 million. Reliant expects to implement the plan during the second half of 2003.

"Given the difficult business conditions, we are aggressively working towards improving our future financial performance by adjusting our business model and cost structure," said Joel Staff, chairman and chief executive, in a news release.

"In addition to our cost-reduction plan, we have made progress in other areas as well. We have built on the platform of stability created by our March bank refinancing by raising approximately $1.4 billion in the capital markets. We used $1.1 billion of the proceeds to pay down our bank debt, eliminating the only required amortization payment associated with our recent refinancing. We have implemented changes to strengthen our management team, focused our efforts to pursue a reasonable resolution of outstanding legal and regulatory issues, and enhanced our corporate governance processes."

Elsewhere, one day after launching, reports are that the book on Dex Media West LLC's (QwestDex) $2.11 billion credit facility (Ba3/BB-) is building very fast, as was expected, according to a source close to the deal.

A number of factors have been cited for the deal's expected smooth syndication including continued strong investor demand for new paper, positive performance of the previous Dex Media East deal and overall strong company performance.

And, despite the large size, overstauration in the marketplace in not a concern, according to the source. "This should always trade well," the source said. "Not like Allied Waste."

Shortly after Allied Waste Industries Inc.'s $2.9 billion credit facility, consisting of a $1.2 billion seven-year term loan with an interest rate of Libor plus 325 basis points and a $1.5 billion revolver with an interest rate of Libor plus 300 basis points, hit the secondary market in April, it traded considerably lower due to oversaturation. However, it did manage to move back up, with the institutional tranche recently seen at plus-par levels and the Scottsdale, Ariz. solid waste management company is now even seeking to obtain a $250 million add-on to its term loan B, at the same pricing, via JPMorgan.

"There's nothing that compares to [Dex Media West] in the market," the source said, explaining why it wouldn't suffer the same short-term fate as Allied Waste. "[Plus], Allied Waste was larger," he added.

Dex Media West's credit facility launched Monday via JPMorgan, Bank of America, Deutsche Bank, Wachovia Securities and Lehman Brothers. The deal was originally slated for July 29, but was postponed due to regulatory issues. A meeting for managing agents has already taken place.

The facility consists of a $1.05 billion term loan B talked at Libor plus 275 basis points, 25 basis points lower than initial price talk, a $100 million revolver talked at Libor plus 300 basis points and a $960 million term loan A talked at Libor plus 300 basis points, the source said.

Last year, Qwest reached an agreement to sell QwestDex, its yellow pages directories business, to The Carlyle Group and Welsh, Carson, Anderson & Stowe for $7.05 billion.

The buyout involves two stages. In the first stage, already completed, QwestDex's operations in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota were purchased for $2.75 billion. In this second stage, operations in Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming will be purchased for $4.3 billion.

For the acquisition of Dex Media East, approximately $1.79 billion of bank debt was syndicated, consisting of a $700 million term loan B with an interest rate of Libor plus 400 basis points, a $690 million term loan A with an interest rate of Libor plus 300 basis points and a $100 million revolver with an interest rate of Libor plus 300 basis points.

Also in primary action, Kerasotes Theaters Inc. reverse flexed the repricing of its $100 million term loan B to Libor plus 325 basis points from Libor plus 350 basis points, according to a syndicate source. Closing on the repricing is expected to take place by the end of this week.

The institutional tranche was originally obtained towards the end of 2002 and carried an interest rate of Libor plus 400 basis points. It was used to refinance existing debt.

Deutsche is the lead bank on the Illinois-based movie chain's deal.

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