Werner holds steady despite news of the possible need to amend financial covenants

By Sara Rosenberg

New York, Dec. 23 - Werner Holding Co.'s bank debt held steady at 90 bid, 91 offered as investors mulled over information disclosed during a conference call on Tuesday that discussed the reasoning behind the company's latest actions regarding Home Depot and Lowe's.

One interesting tidbit revealed during the call was Werner's expectation to come to existing lenders in the relatively near future to discuss amending various financial covenants contained in the credit agreement for compliance sake.

"There's no real change on it," a fund manager said regarding Werner's bank debt. "People are digesting what they heard on the call. They talked about why they decided to stop doing business with Home Depot and signed an exclusive contract with Lowe's. Nothing really interesting."

"They do expect to have to amend their credit facility with this change," the fund manager continued. "Chances are they'll fall short of the EBITDA covenant and other financial covenants. They expect to hold a meeting for the existing group in mid-first quarter 2004 to go over an amendment type of deal and discuss their plans going forward. It will probably happen in February."

On Friday, the company revealed that it would stop supplying home Depot with Werner products. Furthermore, the company announced that it has entered into a long-term agreement with Lowe's Cos. Inc. under which Lowe's will be the exclusive source for Werner's climbing equipment.

Sales of all products to The Home Depot, including extension ladders, stepladders, attic ladders and assorted accessories accounted for $161.3 million, or 31%, of the company's net sales in 2002 and $100.1 million, or 27%, of net sales during the nine months ended Sept. 30.

In response to this news the company's bank debt plummeted to around 86 bid first thing Monday morning but then managed to dust itself off, rebounding to the 90 bid, 91 offered level by the afternoon. Prior to the announcement, the bank debt was quoted around 94 bid, 95 offered.

A similar reaction in Werner's bank debt was seen toward the end of October when the company revealed that Home Depot would no longer be purchasing aluminum and fiberglass stepladders from Werner.

Following that announcement, the Greenville, Pa., ladder company's bank debt dove a couple of points only to rebound to around 94 bid once the market had time to digest the news. Prior to that 8-K filing the term loan was quoted at par or above.

In follow-up news, The Phoenix Cos. Inc. closed on a new $150 million unfunded, unsecured senior credit facility. Fleet Securities Inc. and Wachovia Securities LLC acted as co-lead arrangers on the deal.

The facility consists of a $112.5 million 364-day revolver and a $37.5 million three-year revolver, both priced with an interest rate of Libor plus 175 basis points. The 364-day revolver has an option to extend the maturity for one year.

The revolvers were sought to replace the company's existing $100 million credit facility. Borrowings can be used for general corporate purposes.

Under the covenants, the company must maintain consolidated stockholders' equity of $1.775 billion, stepping up by 50% of quarterly positive net income and 100% of equity issuances; a maximum consolidated debt-to-capital ratio of 30%; and a minimum consolidated fixed charge coverage ratio of 1.25:1, according to a filing with the Securities and Exchange Commission.

The Phoenix Cos. is a Hartford, Conn., provider of wealth management products and services.

Constar International Inc. closed on a new $75 million second lien term loan that was used to prepay debt under the existing term loan and revolver.

In November, Constar amended its credit agreement to allow the company to either obtain a second lien term loan of between $50 and $75 million or issue between $50 and $150 million of second lien bonds.

Also, the mandatory prepayment terms were modified to allow the company to use proceeds from the proposed financing to prepay the term loan and repay outstandings on the revolver while permanently reducing the revolver commitments by up to $10 million.

Furthermore, the amended financial covenants put the company back in compliance with the revised third-quarter financial covenants.

The amendment changed financial covenants from Sept. 30, 2003 through June 30, 2005, including the minimum EBITDA requirement, the maximum senior leverage requirement, the minimum interest coverage requirement and the maximum capital expenditures requirement.

Constar is a Philadelphia producer of polyethylene terephthalate plastic containers for food and beverages.

NRG Energy Inc. closed on its $1.45 billion exit financing credit facility (B1/BB-) consisting of a $1.2 billion 61/2-year term loan B with an interest rate of Libor plus 400 basis points and a $250 million four-year revolver with an interest rate of Libor plus 400 basis points and a commitment fee of 100 basis points.

Credit Suisse First Boston and Lehman Brothers acted as the joint lead arrangers on the Minneapolis energy company's deal.

Proceeds from the credit facility, combined with proceeds from a $1.25 billion second priority senior secured notes offering, are being used to pay off notes issued by NRG operating subsidiaries, NRG Northeast Generating LLC and NRG South Central Generating LLC, as part of the Chapter 11 restructuring, pay off NRG Mid-Atlantic Generating LLC debt, make an additional $500 million cash distribution to NRG's former unsecured creditors, in lieu of issuing the $500 million of subordinated notes originally called for under the NRG plan of reorganization, and fund a $250 million letter-of-credit facility, according to a company news release.

Anteon International Corp. closed on its $350 million amended credit facility (Ba3/BB) consisting of a $150 million seven-year term loan B with an interest rate of Libor plus 200 basis points and a $200 million five-year revolver.

Credit Suisse First Boston and Bank of America acted as joint lead arrangers on the deal.

Proceeds will be used to tender for the company's 12% senior subordinated notes, to pay down the company's existing term loan, to pay associated fees in connection with the amendment of its credit agreement and to repay outstanding revolver borrowings, according to a news release.

Anteon is a Fairfax, Va., provider of information technology solutions and systems.

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