Nextel bank debt unimpressed with company's debt-reduction efforts

By Sara Rosenberg

New York, Aug. 14 - Nextel Communications Inc.'s announcement of a reduction in debt levels is not anticipated to have a great effect on the secondary bank loan levels since the loan is value covered and company issues have still not been resolved, according to a fund manager. Although, a slight "psychological pop" may occur, he added.

"It's not like Nextel bank debt wasn't covered by value anyway," the fund manager said. "Big issues aren't going to change because they paid down some debt.

"Their biggest issue is that they don't have a clear upgrade path to 3G," the fund manager continued. "They've gambled everything on extending their current technology for the next few years. They'll be cash strapped if they try to borrow to finance the upgrade,

"A lot of people are hoping that [Nextel] will be bought in two or three years by someone who can upgrade because they have such an attractive client base," the fund manager concluded.

The Reston, Va. wireless company's bank debt was "sideways" on Wednesday at a bid around 82 and an offer around 83, according to a trader following the company's announcement that since June 30 it retired an additional $733 million principal amount of debt and preferred securities bringing the total of retired debt this year to $1.83 billion.

"I am very pleased with the progress Nextel is making," said president and chief executive officer Tim Donahue, in a company press release. "Nextel continues to opportunistically improve its balance sheet while we pursue smart growth. So far in the third quarter, indications are that our subscriber growth will be consistent with recent quarters while our cash flow is trending upward."

Meanwhile Six Flags Inc.'s bank paper dropped about half a point to a point on Tuesday in response to the company's earnings release and basically remained at the lower price on Wednesday, according to a trader. The Oklahoma City, Okla. theme park operator's bank debt was quoted around 99 3/4.

"It was pretty quiet on that name today," the trader said. "It dropped yesterday on news."

Revenues for the second quarter 2002 were $347.8 million compared to $356.5 million for the comparable quarter of 2001, representing a 2.4% decrease. There was a 9.6% increase in total per capita spending at the consolidated parks, which was offset by an 11% drop in total attendance compared to the 2001 quarter. EBITDA from consolidated operations was $109.6 million as compared to $118.5 million in the 2001 quarter. Adjusted EBITDA was $124 million as compared to $138.3 million for the second quarter of 2001. Net loss applicable to common stock was $11.5 million as compared to net income applicable to common stock of $7.7 million in the 2001 period.

"Six Flags is a highly desirable name because no other theme park operator has bank debt and bonds," the fund manager said. He added that Tuesday's minimal bank debt softening was in reaction to the more than 10 point drop in bond prices, which was in reaction to the over 50% decline in its stock.

"People overreacted," the fund manager said. "Most bank lenders would look at this and yawn. Bank debt leverage is under two times and total leverage is under six times. People are realizing that it's not the greatest stock story ever told but I would be happy to buy their bank debt at below par."

Allied Waste Industries Inc. also remained at previous levels Wednesday following a slight strengthening on Tuesday, according to the trader.

The Scottsdale, Ariz. waste management company's bank debt went up about a point to a bid of 96 and an offer of 98 during the prior day's activity on news that Pricewaterhouse Coopers LLP unqualified opinion report covering financial statements is unchanged from the company's previously issued financial statements.

Furthermore, "the SEC's review of the company's 2001 Form 10-K, March 31, 2002 Form 10-Q and July 31, 2002 Form 8-K has been completed without further comment and without any requirement to restate or amend any previous filings," a company press release said.

Pricewaterhouse replaced Arthur Andersen LLP and was retained to re-audit the financial statements for 2001 in order to provide investors with additional confidence.

"The only thing really holding [Allied Waste] down was the accounting question," the fund manager said. "Now that it's resolved, we should see it go back up."

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