Yellow-Roadway institutional tranches see strong demand with books near to or oversubscribed

By Sara Rosenberg

New York, Nov. 5 - Yellow-Roadway Corp.'s credit facility appears to be moving along rather smoothly as both the term loan B and the prefunded letter of credit facility were said to be either oversubscribed or close to it by the end of the deal's Wednesday launch date, according to a market professional.

"It's a great company. A big company. The ratings are awesome: BBB-/Ba1. It's a great credit," the professional said regarding the deal.

The facility consists of a $175 million term loan B with an interest rate of Libor plus 225 basis points, a $250 million prefunded letter of credit facility with an interest rate of Libor plus 225 basis points and a $250 million revolver with an interest rate of Libor plus 200 basis points, the source said.

Proceeds will be used to help finance the previously announced acquisition of Roadway Corp. by Yellow Corp. for about $966 million plus the assumption of about $140 million in debt, bringing the enterprise value of the acquisition to about $1.1 billion. The combined enterprise will be known as Yellow-Roadway Corp.

Deutsche is the lead bank on the deal.

Yellow Corp. is an Overland Park, Kan.-based less-than-truckload freight hauler. Roadway Corp. is an Akron, Ohio-based less-than-truckload freight hauler.

Pinnacle Foods Corp.'s bank meeting was also reported as a success, as one market source told Prospect News that the meeting "was very well attended and the books are filling up."

The facility consists of a $170 million term loan B that will be used to help support the acquisition of Pinnacle Foods by JPMorgan Partners, in partnership with C. Dean Metropoulos, from Hicks, Muse, Tate & Furst Inc., a $400 million delayed draw term loan that will be used to help finance the Aurora Foods Inc. acquisition, and a $130 million revolver, the source said.

JPMorgan and Deutsche Bank are the lead banks on the transaction.

Pinnacle Foods is a Cherry Hill, N.J. manufacturer and marketer of branded food products formed by Hicks, Muse, Tate & Furst and C. Dean Metropoulos in 2001 to acquire Swanson frozen foods, Vlasic pickles and condiments, and Open Pit barbeque sauce from Vlasic Foods International. Aurora Foods is a St. Louis producer and marketer of leading food brands.

Station Casinos Inc. also launched a deal Wednesday, consisting of a $150 million seven-year term loan with pricing estimated in the Libor plus 300 to 325 basis points range and a $100 million five-year revolver with initial pricing of Libor plus 250 basis points, according to a market source.

Proceeds will be used to refinance existing debt and to fund a $110 million expansion of Green Valley Ranch Station.

Construction on the expansion project should begin in the fourth quarter of 2003 and is expected to be complete in the fourth quarter of 2004.

Station Casinos is a Las Vegas gaming and entertainment company.

In the secondary, Calpine Corp.'s second lien term loan B dropped by about a point immediately following the company's release of earnings numbers that included a cut in guidance, but managed to bounce back to essentially previous levels by the end of the day as investors decided that things weren't as negative as they first appeared.

The paper closed at 93½ bid, 94 offered, but hit lows of 92½ bid, 93 offered "right out of the box", a trader said.

"Everyone gets nervous around the numbers and then they dig into them and pull it back," the trader added.

In the third quarter earnings release, the San Jose, Calif., power company updated its 2003 earnings guidance, lowering the total earnings per share estimation from previous guidance that was released with second quarter results.

For the year ended Dec. 31, the company expects earnings per share to be in the range of $0.85 to $1.00, compared to previous guidance of $0.90 to $1.20 per share. And, core operating earnings guidance was reduced to $0.18 to $0.22 per share from $0.25 to $0.35 per share based on lower spark spreads expected during the fourth quarter, according to the news release.

For the third quarter the company reported earnings per share of $0.51, or $237.8 million of net income, compared with earnings per share of $0.34, or $151.1 million of net income, for the third quarter of 2002.

For the nine months ended Sept. 30, the company reported earnings per share of $0.41, or $162.4 million of net income, compared with earnings per share of $0.40, or $143.8 million of net income, for the same period last year.

"The quarter was highlighted by the very successful advancement of our refinancing and liquidity-enhancing programs - both of which, I'm pleased to report, exceeded our expectations. Following these liquidity and refinancing transactions, we expect to end the year with liquidity of approximately $2 billion. More important, we've accomplished this while continuing to execute our proven business plan, maintaining our financial strength and enhancing the long-term value of Calpine," said Peter Cartwright, chairman, chief executive officer and president, in the release.

"On the liquidity front, Calpine has completed approximately $2.1 billion of liquidity-enhancing transactions in 2003, and we expect to complete approximately $300 million of additional transactions by year-end. We also completed several successful financing transactions, totaling $4.6 billion, which allowed Calpine to extend debt maturities and selectively repurchase certain debt securities at a discount."

"Our efficient fleet of energy centers increased production by 11%; however, operating earnings for the quarter were lower than expected due to low spark spreads brought about by excess capacity in some markets, generally mild weather, high gas prices and a weak economy."

Meanwhile, Dean Foods Co.'s term loan B managed to walk away unscathed on Wednesday after news emerged that the Securities and Exchange Commission is considering bringing a civil injunctive action against the company based on allegations that Dean Foods aided and abetted The Fleming Cos. in connection with Fleming's acceleration of revenue recognition.

The term loan B was quoted unchanged at par 7/8 bid, 101 offered, according to a trader.

Similar notices containing the same allegations from the SEC were also received by two officers of the Dean Dairy Group subsidiary. No corporate executive officers are involved, according to a news release.

"Specifically, the SEC believes that the company provided Fleming with correspondence that allowed Fleming to characterize two payments made by Dean Foods to Fleming as current income rather than deferred revenue to be recognized over future periods," the release said.

"There is no allegation by the SEC regarding Dean Foods' financial statements. The payments in question totaled $2.7 million and were expensed by Dean Foods when they were made in the second and third quarters of 2002," the release added.

On Wednesday, the company also reported third quarter numbers that included earnings of $0.76 per diluted share compared with $0.45 per share in the third quarter of 2002, net income of $122.2 million compared with $68.7 million in the third quarter of 2002, net sales of $2.3 billion, a 3% increase over the same period last year, and operating income of $240.9 million versus $166.3 million in the third quarter of 2002.

At Sept. 30, long-term debt was about $2.6 billion, including $188.3 million due within one year that is reported as current liabilities. At the end of the quarter, about $834 million of the company's $2.8 billion bank facility was available for future borrowings.

During the quarter, the company lowered interest rates on its credit facility, increased its revolver and term loan A commitments to $1 billion each from $800 million and $765 million, respectively, and decreased its term loan to $750 million from $990 million.

For the nine months ended Sept. 30, net sales declined 1% to $6.7 billion, pro forma net income for the nine months totaled $231 million, an increase of 13% over $203.8 million last year, pro forma diluted earnings per share totaled $1.50, an increase of 11% compared with $1.35 in the first nine months of 2002, and operating income was $582.3 million versus $490.4 million in 2002, an increase of 19%.

As for the 2003 and 2004 outlook, "We remain focused and committed to increasing shareholder value at Dean Foods," said Gregg Engles, chairman and chief executive officer, in a news release.

"We continue to expect fourth quarter earnings between $0.54 and $0.56 per share and full year 2003 earnings in the range of $2.03 to $2.05 per share. As we did last quarter, we have attempted to incorporate the rise in raw milk prices into our projections for the balance of the year, and we remain confident in our ability to manage rising raw milk costs effectively."

In follow-up news, the acquisition of Ondeo Nalco by a private equity group consisting of The Blackstone Group, Apollo Management LP and Goldman Sachs Capital Partners from Suez SA has been completed, according to a news release. The equity group tendered an offer for Ondeo Nalco in September for $4.2 billion. As of the closing of the sale, the officially renamed Nalco Co. will operate as a privately held, independent business.

In connection with the acquisition, Nalco obtained a new $1.85 billion credit facility (B1/BB) consisting of a $1.3 billion seven-year term loan B with an interest rate of Libor plus 250 basis points, a $300 million six-year term loan A with an interest rate of Libor plus 250 basis points and a $250 million six-year revolver with an interest rate of Libor plus 250 basis points.

Originally the deal was launched with a $1.1 billion term loan B that was priced with an interest rate of Libor plus 275 basis points. However, the institutional tranche was upsized by $200 million following the $200 million downsizing of the company's bond offering (which ended up totaling $1.6 billion) in order to take advantage of cheaper rates. And, the B loan was reverse flexed by 25 basis points due to overwhelming demand that apparently had the loan two times oversubscribed.

Citigroup, Bank of America, Goldman Sachs, JPMorgan and Deutsche Bank were all lead banks on the deal.

"With the sale of the company behind us, we can increase our focus on driving faster growth while improving the already high-quality service we bring to our customers," said Dr. William Joyce, chairman and chief executive officer of Nalco, in the release. "Developing innovative technology remains a core focus for Nalco. We will also redesign our structures and processes to make it easier for customers to work with us."

Nalco is a Naperville, Ill., provider of water treatment and process chemicals and services.

Overnite Corp. closed on its initial public offering on Wednesday, according to a news release. In connection with the IPO, the company obtained a new $300 million credit facility (Ba1) consisting of a $125 million five-year term loan with an interest rate of Libor plus 150 basis points and a $175 million five-year revolver with an interest rate of Libor plus 150 basis points with a 30 basis points commitment fee.

Credit Suisse First Boston and SunTrust Bank acted as joint lead arrangers and joint bookrunners, SunTrust Bank acted as administrative agent and collateral agent, and Credit Suisse First Boston acted as syndication agent.

Proceeds are being used by the Richmond, Va.-based less-than-truckload trucking company to pay a $128 million cash dividend to Union Pacific Corp. All in all, Union Pacific estimates receiving proceeds of about $610 million from the equity sale, exercise of the underwriters' over-allotment option and the dividend.

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