Usana gone as buyout canceled; Weather tweaks deal; Delta, AMR up on numbers; Masonite falls

By Sara Rosenberg

New York, July 16 - Yet another deal fell off the forward calendar as the credit facility for Usana Health Sciences Inc. is no longer necessary since Gull Holdings Ltd. terminated its offer to purchase the company.

In more primary news, Weather Channel made some changes to its oversubscribed term loan, including increasing the size and reducing pricing, and Quicksilver Resources Inc. came out with some details on its second-lien term loan as the deal was launched to investors.

Over in the secondary, Delta Air Lines Inc. and AMR Corp. both saw their bank debt levels rise after earnings were released, and Northwest Airlines Corp., which is merging with Delta, was better as well.

Also in trading, Masonite International Inc.'s term loan B continued to fall, still in reaction to the amendment proposal, whose terms are not totally appealing to lenders and was launched at the start of the week.

The credit facility for Usana Health Sciences has been removed from the loan calendar pipeline being that Gull Holdings ended its offer to acquire the company as a result of not being able to get enough shares tendered.

The proposed $215 million five-year senior secured credit was committed by Ableco Finance LLC and consisted of a $15 million revolver and a $200 million term loan, with both tranches priced at Libor plus 1,050 basis points with a 3.5% Libor floor, according to filings with the Securities and Exchange Commission.

The term loan was going to carry call protection of 105 in year one, 104 in year two, 103 in year three, 102 in year four and 101 in year five.

Covenants were going to include maximum capital expenditures, minimum EBITDA, maximum senior secured debt/EBITDA, minimum fixed-charge coverage, limitations on the payment of dividends and prohibitions on other funded debt.

Under the buyout offer, Gull was going to purchase Usana, a Salt Lake City-based developer, manufacturer and distributor of nutritional and personal care products, for $28 per share, raised from an initial offer of $26 per share, through a tender offer that began on June 2.

The offer was being made through an acquisition vehicle named Unity Acquisition Corp. and was conditioned on the holders of at least the majority of the publicly held shares tendering their shares in the offer, Gull owning at least 90% of the outstanding shares at the completion of the offer and closing of the debt financing.

Gull Holdings is controlled by Dr. Myron W. Wentz, chairman and chief executive officer of Usana.

Early this month, Usana's special committee urged its shareholders not to tender their shares in the revised $28 per share offer, saying that the offer was inadequate.

On Wednesday, Gull announced that it terminated its effort to purchase Usana because after further reviewing the results of the offer and receiving additional feedback from shareholders, it became clear that the purchaser would not receive tenders of a sufficient number of shares to satisfy the non-waivable condition to the offer that the purchaser own at least 90% of the outstanding shares following the completion of the offer.

"Our offer to shareholders to purchase the publicly held shares of Usana was intended to provide shareholders with an opportunity for immediate liquidity at a significant premium to the trading price for the shares," said Wentz in a news release.

"While we are disappointed that we were not able to complete the offer, we believe that Usana shareholders have sent us a strong message about their confidence in the long-term prospects of the company. Our mission has always been to develop and provide the highest quality, science-based health products, distributed internationally through network marketing. We will continue to pursue this mission for the benefit of all shareholders," Wentz added in the release.

This is the third deal this week to be taken off the calendar. On Tuesday, Grey Wolf Inc.'s $650 million credit facility (Ba1/BBB-) was removed from the forward calendar since the company's shareholders voted down the proposed merger with Basic Energy Services Inc. And, on Monday, Applica Pet Products LLC's $325 million credit facility (B1/BB) was pulled from market since the seller, Spectrum Brands Inc., was unable to get senior lender approval for the sale of the company, which resulted in the termination of the sale agreement.

Weather Channel revises term loan

Weather Channel announced modifications to its term loan late in the day Wednesday that included upsizing the tranche and lowering the spread, according to a market source.

The term loan is now sized at $1.07 billion, up from $1.02 billion, and pricing was reduced to Libor plus 400 bps from Libor plus 425 bps, the source said.

Like before, the term loan has a 25 bps step down in pricing when total leverage is 5¼ times, a 3.25% Libor floor and is being sold to investors at an original issue discount of 97.

When initial guidance emerged on the term loan, it was said that the deal was being talked in the area of Libor plus 400 bps to 425 bps with an original issue discount in the range of 97 to 98; however, after a conference call with select investors was held, which was the only launch into syndication that the deal experienced, price talk was focused on Libor plus 425 bps at a discount of 97.

Weather Channel's now $1.22 billion credit facility, up from $1.17 billion, still includes a $150 million revolver that is priced at Libor plus 400 bps.

Deutsche Bank and GE Capital Markets are the co-lead arrangers on the credit facility, with Deutsche the left lead.

Proceeds will be used to help fund the acquisition of the company by NBC Universal, Bain Capital and Blackstone Group from Landmark Communications for about $3.5 billion.

Other financing for the buyout is coming from $610 million of mezzanine debt. The mezzanine was initially going to be sized at $660 million, but it was reduced as a result of the term loan upsizing.

Closing is anticipated to take place by year end, subject to receipt of customary regulatory approvals.

Following completion of the buyout, Weather Channel will be operated as a separate entity, based in Atlanta, with management services to be provided by NBC Universal.

The transaction includes The Weather Channel Networks, the third-most distributed cable network, The Weather Channel Interactive, which includes the web site weather.com, and Weather Services International, a weather forecasting provider.

Total leverage is 6.7 times. Senior secured leverage is now 4.3 times, up from an original 4.1 times because of the additional term loan debt.

Quicksilver floor emerges

Quicksilver Resources held a bank meeting on Wednesday morning to kick off syndication on its proposed $700 million 30-month second-lien term loan, and although price talk was not announced, it was revealed that the deal will have a 3.25% Libor floor, according to a market source.

In addition, it was said that pricing on the term loan would step up by 25 bps after two years and that the debt would be repayable at par for the first two years, then at 103, 102, 101, the source said.

Credit Suisse and JPMorgan are the lead banks on the deal that will be used to help fund the acquisition of producing, leasehold, royalty and midstream assets.

Other financing for the acquisition will come from $300 million of borrowings under the company's existing revolver and $307 million of common stock.

The company hopes to repay $500 million of the new debt by year end 2009.

At year end 2008, debt to capital is expected at around 60%, debt to cash flow from operations is expected at around 3.3 times and interest coverage is expected at around 6.5 times.

Under the acquisition agreement, Quicksilver is buying the assets that are associated with the Barnett Shale formation in northern Tarrant and southern Denton counties of Texas from various private parties, including Chief Resources LLC, Hillwood Oil & Gas LP and Collins and Young LLC for $1.307 billion.

The acquisition is scheduled to close on Aug. 8, subject to expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the satisfaction or waiver of other customary conditions.

Quicksilver is a Fort Worth, Texas-based natural gas and crude oil exploration and production company.

Delta, Northwest trade up

Shifting to trading news, Delta Air Lines' first- and second-lien bank debt gained ground during the session after the company announced results for the quarter ended June 30 that, although were not great, did beat estimates, according to a trader.

And, hitching a ride on Delta's coattails was Northwest, as the previously announced merger partner saw its term loan tread higher too, the trader said.

Delta's first-lien term loan was quoted at 78¼ bid, 80¼ offered, up from 76¾ bid, 78¾ offered on Tuesday, and its second-lien term loan was quoted at 59 bid, 62 offered, up from 58 bid, 61 offered on Tuesday, the trader continued.

Meanwhile, Eagan, Minn.-based Northwest Airlines saw its term loan quoted at 72 bid, 74 offered, up from around 70 bid, 72 offered at the previous day's close, the trader added.

For the quarter, the Delta's net income excluding special charges was $137 million, or $0.35 per diluted share, and including special charges of $1.2 billion - related to the impairment of goodwill and other intangibles - net loss for the quarter was $1 billion, or $2.64 per diluted share. Net income in the second quarter of 2007 was $274 million.

Delta said that the year-over-year decrease in net income was driven primarily by unprecedented fuel prices, partially offset by an increase in operating revenue from international expansion.

Revenue for the quarter improved 10%, or almost $500 million, year over year as a result of the company's international network investment, cargo and ancillary business revenue growth, and aggressive yield management.

Operating expenses for the quarter increased $2.1 billion, or 46%, compared to the June 2007 quarter, which reflects special charges of $1.3 billion and a more than $1 billion increase in costs due to higher fuel prices, partially offset by fuel hedging gains. Excluding special charges, Delta's operating expenses increased 17%, or $782 million.

During the June quarter, as fuel prices continued to rise, the company reevaluated its flight schedule, targeting additional reductions in capacity. Delta now expects system capacity for the second half of 2008 to be down 4% compared to 2007, with domestic capacity down 13% and international capacity up 14%.

The Atlanta-based airline company is also now targeting to remove the equivalent of 100 regional aircraft from the system by the end of the year.

Through aggressive revenue and cost initiatives, including expansion of its international network, and use of its fuel hedge strategy, Delta expects to cover about $3 billion of the estimated $4 billion raw impact of higher fuel input costs in 2008.

As of June 30, the company had $4.3 billion in unrestricted liquidity, including $1 billion available under its revolving credit facility. Delta expects to end the year with a liquidity position of $3.2 billion, including that $1 billion of revolver availability.

Also, on Wednesday, Delta said that it is hoping to close its merger with Northwest Airlines during the fourth quarter.

Delta forecasts $500 million in synergies in 2009, increasing up to the full-run rate of about $2 billion in annual synergies by 2012. In addition, estimated cash integration costs have been refined and are expected to be about $600 million over three years.

AMR rises

AMR's term loan was also stronger on Wednesday as the company also came out with earnings that beat analyst estimates, according to a trader.

The term loan was quoted at 87½ bid, 89½ offered, up from 87 bid, 89 offered, the trader said.

For the second quarter, AMR reported net loss of $1.4 billion, or $5.77 per share, including special charges, and a net loss of $284 million, or $1.13 per share, excluding those charges. By comparison, in the second quarter last year, the company had a net profit of $317 million, or $1.08 per diluted share.

Like Delta, record jet fuel prices contributed significantly to AMR's loss in the quarter. AMR paid $3.19 per gallon for jet fuel in the second quarter, compared to $2.09 a gallon in the second quarter of 2007, a 53% increase. As a result, the company paid $838 million more for fuel in the second quarter than it would have paid at prevailing prices from the prior-year period.

Consolidated revenues for the quarter were about $6.2 billion, an increase of 5.1% year over year.

AMR ended the second quarter with $5.5 billion in cash and short-term investments, including a restricted balance of $434 million. At the end of the second quarter of 2007, the company had $6.4 billion in cash and short-term investments, including a restricted balance of $470 million.

The Fort Worth, Texas-based airline company's total debt at the end of the quarter was $15.2 billion versus $17.3 billion at the end of the second quarter of 2007.

"Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future," said Gerard Arpey, chairman and chief executive officer, in a news release.

"Clearly, our second-quarter results were disappointing, but I am also pleased with our efforts as a company to take difficult yet necessary steps to manage through this uncertainty. While we believe the airline industry cannot continue, in its current form, at today's record fuel prices, we also believe our decisions and hard work by employees in recent years have better prepared us to face these challenges. We remain committed to taking action - whether that relates to capacity reductions, revenue enhancements, fleet changes or other efforts to improve our financial foundation - as we work to secure our long-term future," Arpey added in the release.

Masonite still under pressure

Masonite's term loan B continued to slide lower as investors are still responding to the company's covenant amendment proposal, according to traders.

The term loan B was quoted at 87½ bid, 88½ offered, down from 88½ bid, 89½ offered on Tuesday, traders said. And, during the session, there were a couple of big blocks that traded in the 86s before the paper rebounded a little bit by the close, one trader remarked. On Monday, the loan was quoted at 90¾ bid, 91½ offered.

When asked why the paper has been steadily moving lower since the amendment was presented to lenders, one trader responded, "Contentious amendment. Sponsor that won't roll over. Bank group that's banding together. And, you got bonds that are getting crushed.

"Bank group is not happy with the amendment terms. Bunch of asks are just not what the lenders wanted," the trader added.

On Monday, Masonite held a call to discuss an amendment with lenders under which the credit agreement's total leverage and interest coverage ratios would be replaced with a minimum adjusted LTM 12 months EBITDA test.

The amendment would also change pricing on the term loan to be based on a grid that can range from Libor plus 350 bps to 500 bps. Currently, the term loan is priced at Libor plus 200 bps.

In addition, a 3.25% Libor floor would be added to the loan.

Lenders would get a 50 bps amendment fee in return for their consents.

Last week, the company said that, based on a preliminary evaluation of its financial performance, it expected to be unable to comply with financial covenants for the quarter ended June 30 as a result of challenging conditions in the U.S. housing industry.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

LCDX inches higher

LCDX 10 was better with equities on Wednesday and the cash market felt pretty stable across most sectors, according to a trader.

The index was quoted at 97 bid, 97.20 offered, up from 96.80 bid, 96.90 offered, the trader said.

The trader went on to say that the index was weaker at the open with levels of 96.60 bid, 96.80 offered and then it popped up almost immediately to Tuesday's closing levels and kept grinding higher from there.

As for equities, Nasdaq closed up 69.14 points, or 3.12%, Dow Jones Industrial Average closed up 276.74 points, or 2.52%, S&P 500 closed up 30.45 points, or 2.51%, and NYSE closed up 175.02 points, or 2.15%.

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