Charter, Nextel gain on growing investor confidence

By Sara Rosenberg

New York, July 31 - Some secondary bank loan names are starting to strengthen in response to the recently improved investor outlook with beneficiaries from the change in attitude including such names as Charter Communications Inc. and Nextel Communications Inc.

Despite the fact that market participants view the slight improvement as a step in the right direction, the journey is not yet complete and the bank debt market is still being described as backed up with limited trading activity taking place, market sources said.

Charter Communications was quoted in the high 80's, according to a trader. "It's up a few points, although I haven't seen it trade today."

The St. Louis, Mo. cable company has experienced positive price movement this week following Monday's story in the New York Times speculating about the possibility of Paul Allen taking the company's private. Its stock and bonds have also gained.

Nextel Communications, a Reston, Va. communications company, tranche D loan traded at 793/4, up about half a point to one point from Tuesday's levels, the trader said.

"There's a bit more confidence out there," the trader said. "But it's fragile," he warned.

"The market it still slightly backed up," a second trader said. "Secondary trading on the par side is still kind of light and distressed trading is also backed up. Any traders who were long are still feeling pain. New issue products are still struggling in their own regard. But we are starting to see an improvement."

The first step towards recovery is that "spreads widen", the trader explained. The second step "is that loans reprice or get pulled." Upon capitulation by the offer side to new secondary prices, the bid/ask spread tightens and trading will resume, creating less back up in the market.

"We are towards the end of the repricing stage," the trader said. Although, he added, talk is that August will be a very quiet month in terms of trading and new issues.

In other news, Masonite International Corp. completed the amendment of its senior secured credit facility with SunTrust Bank, reducing interest rates on the loan. The company's total debt now consists of a $700 million credit facility, of which $590 million was outstanding on July 31. Compared to the previous financing structure, annual cost savings from this transaction are expected to be approximately $8.0 million after tax and are expected to result in an annual increase in earnings per share of approximately $0.15.

Furthermore, the Mississauga, Ont. building products company prepaid in full the principal and interest on its 11.25% subordinated long-term debt of $125 million for $105 million.

"We are extremely pleased to have completed this transaction which lowers our overall interest rate and facilitated the early repayment, at a discount, of the subordinated long term debt," said Philip S. Orsino, president and chief executive officer, in a company press release.

Herbalife international Inc. closed on a $205 million senior secured credit facility (B1/BB-) in conjunction with the completion of the leveraged buyout by Whitney & Co. LLC and Golden Gate Capital Inc. The loan consists of a six-year term loan B and a five-year revolver.

UBS Warburg was the lead bank on the credit facility.

The merger price was approximately $682 million and was funded from borrowings of $180 million under the credit facility, net proceeds of $24 million from the sale by WH Holdings of $38 million 15.5% senior notes due July 2011, gross proceeds of about $163 million from the sale by WH Acquisition of $165 million 11.75% senior subordinated notes due July 2010, approximately $214 million of cash balances and $176 million from the equity offering by WH Holdings, according to a filing with the Securities and Exchange Commission.

"This partnership will allow Herbalife to open a new chapter of success with a solid financial base, greater emphasis on new, best-in-class products, and more effective management of the business," said Jesse Rogers, managing director of Golden Gate Capital, in a press release. "The consistency and focus we will bring to the situation, combined with the benefits from distributor ownership, will go a long way towards realizing Herbalife's potential."

Herbalife is a Los Angeles, Calif. network marketing company that sells weight management products, nutritional supplements and personal care products.

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