Cumulus Media breaks in 101 context; Tenet Healthcare holds steady after surge of bad news

By Sara Rosenberg

New York, Jan. 28 - Cumulus Media Inc.'s repriced $320 million term loan broke for trading on Wednesday and headed immediately higher to 101 plus levels. Meanwhile, Tenet Healthcare Corp.'s bank debt remained unscathed by news of asset divestitures, impairment charges, possible future violation of leverage ratio covenants and rating downgrades by Standard & Poor's.

Cumulus Media's term loan was seen at 101¼ bid, 101½ offered during its first day in the secondary market, according to various traders.

JPMorgan was the lead bank on the deal that essentially repriced the term loan B at Libor plus 225 basis points, sources said.

Cumulus Media is an Atlanta owner and operator of radio stations.

Tenet's bank debt was quoted at 93 bid, 96 offered by one trader, while a second trader placed the paper closer to 94½ bid, 95½ offered levels.

"It's probably unchanged for the most part," the second trader added.

On Wednesday, the Santa Barbara, Calif., healthcare services company announced that it will seek buyers for 27 hospitals, including 19 in California and eight others in Louisiana, Massachusetts, Missouri and Texas. The company anticipates getting total net proceeds from the divestitures of about $600 million, a significant portion of which is expected to be received in the form of tax benefits from anticipated losses to be incurred from the potential sale of many of these hospitals. These tax benefits are not expected to be realized in cash until 2005 or later.

"Internal and external challenges have severely impacted the performance of the 19 hospitals we have decided to divest in California, thus making it impossible for Tenet to justify the $1.6 billion investment we now estimate these hospitals require to comply with the state's seismic standards. The 17 California hospitals we will continue to operate are expected to require less than $300 million to meet seismic standards, and we will meet that requirement," said Trevor Fetter, president and chief executive officer, in a company news release.

The four hospitals being divested in Louisiana and Missouri have produced weak financial results, and the four hospitals being divested in Massachusetts and Texas are in geographic markets that Tenet no longer intends to serve.

The restructuring and the planned disposition of the 27 facilities is expected to be substantially complete by the end of 2004. Citigroup Global Markets and Banc of America Securities have been retained as joint advisers to assist with the divestiture process.

Also on Wednesday, Tenet revealed that its anticipates earnings per share from continuing operations to be significantly below the current First Call mean estimate of $0.11 for the fourth quarter of 2003 and $0.50 for fiscal 2004. And, preliminary results indicate that the company generated significant negative operating cash flow in the fourth quarter of 2003, and it expects to generate negative operating cash flow in fiscal 2004.

"Declining financial performance for the quarter was driven primarily by two contributing factors of roughly equal importance: continued deterioration in bad debt expense (estimated to be more than 11% of net operating revenues in the fourth quarter) and softness in net operating revenue. The company is implementing multiple initiatives to address these issues, but it expects these adverse trends to continue through 2004," the release said.

In the fourth quarter the company expects to record impairment charges of about $1.4 billion consisting of an impairment charge for long-lived assets of about $500 million pre-tax, or 67 cents per share after tax, related to the write-down of hospital assets to their estimated fair market values and a charge for the impairment of goodwill of about $935 million pre-tax, or $1.76 per share after tax.

Lastly, the company revealed that it will likely exceed its leverage ratio covenant under its credit agreement during the second or third quarter of 2004 (see story elsewhere in this newsletter).

In response to all this news, S&P lowered Tenet's corporate credit and senior unsecured debt ratings to B+ from BB-. The rating was also placed on CreditWatch with negative implications.

"The downgrade reflects concern with Tenet's ability to reconstruct pricing on its managed care business, cash flow erosion during an asset divestiture process, and the upcoming need for another bank loan leverage covenant waiver," said S&P credit analyst David Peknay, in the rating release.

"Liquidity is expected to weaken as the bank loan size may be reduced if a waiver is received, and some combination of cash and/or bank debt may be necessary to meet cash needs over the next year," the rating agency added.

Goodyear oversubscribed

The Goodyear Tire & Rubber Co.'s $300 million term loan add-on to its existing $1.3 billion asset-based credit facility due March 31, 2006 that launched Tuesday is already "a little oversubscribed", according to a source close to the deal.

JPMorgan and Citigroup are the lead banks on the loan, which is talked at Libor plus 425 to 450 basis points.

Proceeds from the add-on would be used for general corporate purposes.

Under the current asset-based credit agreement, which consists of a $500 million revolver and an $800 million term loan, the company is permitted to increase the size of the facility by $300 million through extensions of, or increases in, commitments by new or existing creditors, according to a 10-Q filed with the Securities and Exchange Commission on April 30.

In order to successfully close on the deal, the Akron, Ohio, tire company must first get approval from lenders holding a majority of the commitments under the existing credit facility, according to the news release.

The company is also looking to begin talks with lenders about amending its senior secured credit facilities to allow for future capital markets transactions, which may involve the granting of junior liens on some of the collateral securing the senior secured U.S. credit facilities.

Carmike Cinemas allocations

Carmike Cinemas Inc.'s $150 million credit facility is expected to allocate and break for trading on Thursday, according to a source close to the deal. It was previously anticipated that the loan would hit the secondary sometime this week, although a specific day had not yet been nailed down.

The facility launched about a week ago to a very receptive market that led to the oversubscription of both tranches pretty quickly after the deal's debut.

Goldman Sachs is the sole lead bank on the deal that consists of a $50 million first lien revolver due 2008 with price talk of Libor plus 325 basis points (B1/B+) and a $100 million second lien term loan due 2009 with an interest rate that has firmed up at Libor plus 325 basis points from talk in the Libor plus 325 to 350 basis points area (B2/B).

The term loan also contains call protection of 103 in year one, 102 in year two and 101 in year three, according to the source.

Besides the new credit facility, the company is also gearing up to price $150 million of senior subordinated notes and sell common stock.

Proceeds from the new credit facility, the new senior subordinated notes and excess cash will be used to refinance the existing term loan, tender the existing 10 3/8% senior subordinated notes, repay a portion of long-term trade payables and pay related transaction fees and expenses.

Proceeds from the common stock offering, which are estimated at $95.8 million, will be used to repay term loan debt as well.

The interest rate on the company's existing term loan in effect as of Sept. 30 was 7.75% per annum, according to an SEC filing. The term loan is not set to mature until Jan. 31, 2007.

On Wednesday, S&P, aside from assigning bank loan ratings of B+/B, placed Carmike Cinemas' ratings on CreditWatch with positive implications based on the improvement to the company's capital structure that would result from its proposed stock offering and debt refinancing.

Subject to a successful recapitalization, the corporate credit rating would be raised to B from CCC+ with a stable outlook.

Furthermore a recovery rating of 1 was assigned to the revolver indicating a high expectation of a full recovery of principal in a default scenario and a recovery rating of 4 was assigned to the term loan indicating that these lenders may only receive a marginal recovery of 25% to 50% of principal in a default, due to the only partial pledge of the company's theaters and the priority position of the first-lien holders.

"The proposed recapitalization will lower debt and debt-like payables about 28% and improve Carmike's leverage and coverage ratios somewhat, although lease-adjusted credit measures will reflect less progress," said S&P credit analyst Steve Wilkinson, in the rating release. "The new debt structure will also alleviate financial pressure by deferring debt maturities that were somewhat high relative to the company's cash flow and increasing. In addition, the new loan will give Carmike a little more flexibility to upgrade and expand its circuit, which remains somewhat less modern than other large exhibitors."

Carmike is a Columbus, Ga., motion picture exhibitor.

Lennar Corp. deal closes

A company jointly owned by Lennar Corp. and LNR Property Corp. completed the acquisition of Newhall Land and Farming Co. for a total purchase consideration of about $1 billion, according to a Lennar/LNR news release.

In connection with the acquisition Lennar/LNR obtained a $600 million credit facility consisting of a $400 million term loan B with an interest rate of Libor plus 275 basis points and a $200 million revolver with an interest rate of Libor plus 225 basis points.

The term loan B was used to fund the acquisition and the revolver will be used to finance operations of Newhall Land and other property ownership and development companies that are jointly owned by Lennar and LNR.

Bank One and Deutsche Bank were the lead banks on the credit facility.

"We are pleased to be joining forces with Lennar and LNR to carry out the vision for Valencia and Newhall Ranch. While this transaction brings to an end our 34-year history as a publicly traded entity, it is the start of a new chapter in the long, proud and continuing history of Newhall Land," said Gary M. Cusumano, president and chief executive officer of Newhall, in a Newhall news release.

Lennar is a Miami homebuilder and LNR is a Miami Beach, Fla., real estate investment, finance and management company.

Cadmus Communications Corp. closed on its $100 million four-year revolver that carries an initial interest rate of Libor plus 275 basis points. Wachovia and Bank of America were the lead banks on the deal.

Proceeds were used to refinance the company's existing credit facility that was scheduled to mature on March 31. The company also terminated its accounts receivable securitization program concurrently with the refinancing.

"We appreciate the support of our bank group and the confidence they have in our operational and financial performance and our strategic direction. This facility will provide sufficient liquidity to meet our operating requirements for capital expenditures and working capital and support accelerated growth and entry into new content-rich markets," said Paul K. Suijk, senior vice president and chief financial officer, in a company news release.

Cadmus is a Richmond, Va., provider of end-to-end integrated graphic communications services.

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