Charter heads higher on improved liquidity and rating outlook revision to stable

By Sara Rosenberg

New York, Nov. 4 - Charter Communications Inc.'s opco term loan B bank debt closed higher by more than half a point on Tuesday following news of a $500 million bond offering and an upgrade in ratings outlook by Moody's Investors Service, according to a trader.

The term B paper was quoted at 97 1/8 bid, 97 5/8 offered and traded as high as 97 3/8 during market hours, the trader said. Previously the paper was quoted at 96¾ bid, 97¼ offered.

On Thursday night, Charter announced that its subsidiaries, CCO Holdings LLC and CCO Holdings Capital Corp. would offer $500 million of senior notes due 2013 in a private transaction.

"The deal blew out," the trader said regarding the bonds. "I haven't seen it price but word off the high-yield desk is that it was blown right out the door."

Proceeds from the transaction will be used to repay indebtedness under the revolving credit facilities of Charter's subsidiaries and for other general corporate purposes.

"It's more liquidity," the trader said in explanation of why the bank debt reacted so positively to the bond sale news.

"Also, they supposedly held a very positive conference call today," the trader added.

Furthermore, Moody's revised Charter's rating outlook to stable from negative and said that the speculative-grade liquidity rating will be raised to SGL-3 from SGL-4 following successful completion of the pending bond transaction and repayment of current revolver outstandings.

"The rating outlook revision reflects Moody's perception that the probability of near-term default has been reduced somewhat, and that the likelihood of further potential requisite downward rating action(s) over the next 12 to 18 months has subsequently diminished, as well," Moody's said.

"On a pro forma basis, the company's pro forma near-term liquidity profile will be considerably improved, with an estimated $1.3 billion (or more, if the amount of the public offering is upsized) of gross cash proceeds expected to be raised and applied toward revolver reductions," Moody's said.

"Incremental liquidity is being generated through these transactions, which in turn, will provide added assurances about the company's ability to remain compliant with future bank financial maintenance covenants, and thereby maintain access to remaining undrawn lines of credit," the ratings agency added.

"This will, in turn, enhance management's ability to satisfy its still high cash funding needs, including those related to operating shortfalls, escalating bank term loan amortization payments, the December 2003 scheduled CC V sinking fund payment, and remaining maturities of unexchanged CCI convertible debt - all through at least 2005, if not 2006," Moody's added.

Standard & Poor's also released a rating announcement, confirming all of the company's ratings and placing the outlook on developing status.

"The new notes extend Charter's debt maturities and increase bank borrowing availability to $1.2 billion, from $735 million as of Sept. 30, 2003. This liquidity, together with roughly $90 million in proceeds from the Oct. 1, 2003, sale of a cable system in Port Orchard, Wash., and about $765 million in asset sale proceeds expected in 2004, put Charter in a better position to repay $618 million and $156 million of convertible debt maturing in 2005 and 2006, respectively," S&P said.

Charter's bank debt was also pretty active on Monday as the company announced favorable third quarter numbers. The paper had moved up from opening levels of 96¼ bid, 97¼ offered to 97¼ bid, 97¾ offered following the earnings news and then settled back down at 96¾ bid, 97¼ offered toward the end of the day, according to a trader.

For the third quarter, revenues were $1.207 billion, up from last year's third-quarter revenues of $1.166 billion, operating costs and expenses totaled $719 million, a 3% increase over the year-ago quarter, income from operations totaled $117 million, an increase of $26 million, or 29%, from the $91 million reported in the third quarter a year ago.

Also for the quarter, adjusted EBITDA was $488 million, a 5% increase over adjusted EBITDA of $466 million for the year-ago third quarter, and net income applicable to common stock was $36 million for the quarter, or 12 cents per share, including a $267 million gain recognized from a $1.9 billion debt exchange transaction completed in September, compared to a net loss of $167 million, or 57 cents per share, in the same period last year.

As of Sept. 30, the St. Louis cable company had $18.5 billion of outstanding debt, $135 million in cash and borrowing capacity of $735 million under its credit facilities.

In primary news, Saks Inc.'s $700 million senior secured asset-based revolver, which launched last week, has already received commitments from tier one agents plus a few other commitments as well, as a few investors decided to put their orders in well before the commitment deadline of mid to late next week.

"People are reviewing the deal," a source close to the deal told Prospect News. "Tier ones are all in there. It has received a couple of early bird commitments. I think it will be well received."

Fleet is the co-lead arranger and administrative agent, and Citigroup is the co-lead arranger and syndication agent, with Fleet listed on the left. Bank One and Wachovia have signed on as co-documentation agents.

The revolver has a tenor of 63 months and an initial interest rate of Libor plus 175 basis points. The interest rate is tied to an availability based grid.

Proceeds will be used to refinance existing debt and for general corporate purposes.

Saks is a Birmingham, Ala., department store operator.

Genesis Health Ventures Inc.'s $185 million seven-year term loan B was flexed down to Libor plus 275 basis points from Libor plus 300 basis points, according to a syndicate report. Wachovia is the left lead arranger on the deal.

The $260 million senior credit facility (Ba3/BB-) also contains a $75 million five-year revolver with an interest rate of Libor plus 275 basis points, unchanged from initial pricing.

Proceeds, combined with proceeds from a $200 million bond offering, will be used to help support the spin-off its eldercare operations into the newly formed eldercare company, GHC.

Genesis Health Ventures is a Kennett Square, Pa., provider of healthcare services to the elderly.

As for new deals, five credit facilities launched into the marketplace on Tuesday, including Atkins Nutritionals Inc., CamelBak, Sola International Inc., St. Marys Cement Inc. and 24 Hour Fitness Worldwide Inc.

Atkins Nutritionals held a bank meeting for a $323.5 million credit facility consisting of a $30 million five-year revolver with an interest rate of Libor plus 325 basis points, a $215 million first-lien term loan with an interest rate of Libor plus 350 basis points and a $78.5 million second-lien term loan with an interest rate of Libor plus 650 basis points.

"It went really well," a source close to the deal said. "We had a bunch of commitments in prior to the bank meeting."

Originally, the deal was expected to contain a $200 million first lien tranche. All other tranches remained sized as expected.

UBS Investment Bank is the lead arranger on the deal.

Proceeds will be used to back the company's buyout by Parthenon Capital and GS Capital Partners.

Atkins Nutritionals is a Ronkonkoma, N.Y. provider of food, nutritional and information products for controlled carbohydrate lifestyles.

CamelBak launched a $100 million senior secured credit facility consisting of a $20 million five-year revolver and an $80 million six-year term loan, both talked at Libor plus 425 basis points. BNP Paribas and Bank of New York are the lead banks on the deal, with BNP listed on the left.

Proceeds will be used to help support the acquisition of 100% of CamelBak's capital stock by the existing sponsor.

CamelBak is a Petaluma, Calif., producer of personal hydration systems.

Sola held a meeting for a $225 million credit facility consisting of a $175 million six-year term loan and a $50 million five-year revolver, both priced at Libor plus 300 basis points. UBS Investment Bank and JPMorgan as joint lead arrangers and bookrunners, with UBS listed on the left. And, Union Bank of California has already signed on as administrative agent.

"The meeting was totally packed. There were around 90 investors there," a source said. "A bunch of commitments were put in. [It is expected] that the deal will be subscribed pretty quickly."

Proceeds will be used to refinance existing debt.

Sola is a San Diego designer, manufacturer and global distributor of plastic and glass eyeglass lenses.

St. Marys Cement held a bank meeting on Monday in Toronto and on Tuesday in New York for a $325 million senior secured credit facility (B1) consisting of a Canadian four-year revolver in a U.S. equivalent amount of $50 million, a Canadian four-year term loan A in a U.S. equivalent amount of $75 million and a $200 million six-year term loan B with an interest rate of Libor plus 300 basis points.

Citigroup Global Markets Inc. is the lead bank on the deal that will be used to refinance an existing $265 million term loan.

St. Marys Cement is a Toronto supplier of cement, ready mix and aggregates.

24 Hour Fitness Worldwide Inc. launched a $340 million senior secured credit facility (B1/B) consisting of a $65 million five-year revolver and a $275 million six-year term loan B. JPMorgan and Credit Suisse First Boston are the co-agents and joint bookrunners on the deal.

Proceeds will be used to refinance the company's existing credit facility, extending maturities and improving the spread over Libor from the current level, a company spokesman said.

24 Hour Fitness is a San Ramon, Calif., owner and operator of a fitness center chain.

In follow-up news, DRS Technologies Inc. closed on its $411 million credit facility (Ba3/BB-) on Tuesday consisting of a $236 million seven-year term loan B with an interest rate of Libor plus 250 basis points and a $175 million five-year revolver with an interest rate of Libor plus 225 basis points, according to a market professional.

Initially, the deal was launched as a $512.5 million credit facility consisting of a $362.5 million term loan B with an interest rate of Libor plus 275 basis points and a $150 million revolver with an interest rate of Libor plus 225 basis points.

However, during syndication the term loan B was flexed down due to overwhelming demand and reduced in size following the issuance of an upsized bond offering. The company opted to increase the bond sale to $350 million from $200 million and reduce the bank debt due to the great rate of 6 7/8% received on the bonds.

Also during syndication, the revolver was upsized to $175 million from $150 million.

Proceeds from the credit facility and the bond offering will be used to help fund the acquisition of Integrated Defense Technologies Inc., including repayment of that company's debt.

Bear Stearns and Wachovia are the lead banks on the deal for the Parsippany, N.J., supplier of defense electronic products and systems.

Buckeye Technologies Inc. closed on it $220 million senior secured credit facility (B1/BB-) consisting of a $150 million 61/2-year term loan B with an interest rate of Libor plus 250 basis points and a $70 million five-year revolver with an interest rate of Libor plus 300 basis points, according to a syndicate source.

Initial price talk prior to the deal's launch had the term loan B priced at Libor plus 350 basis points, according to market sources, but the tranche was reverse flexed due to overwhelming demand.

Proceeds are being used to repay existing revolver debt, refinance the accounts receivable securitized revolver upon maturity in December 2003 and pay transaction fees and expenses.

Fleet and Citigroup were the lead banks on the deal for the Memphis, Tenn., manufacturer and marketer of value-added cellulose products.

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