Nextel bank debt soars on earnings while Terex results send its paper tumbling

By Sara Rosenberg

New York, Oct. 24 - Nextel Communications Inc. and Terex Corp. both saw movement in their bank paper following the release of third quarter earnings - but while Nextel posted higher-than-anticipated numbers that gave its debt a nice boost, Terex posted lower-than-anticipated numbers and announced a bleak fourth quarter outlook, sending its debt southwards.

Nextel's bank debt was about a point and a half higher on Thursday following better than expected third quarter earnings results. The loan was quoted with a bid around 88½ and an offer around 89, according to a trader.

Income for the third quarter was $526 million, or 58 cents per share, including gains of 44c per share due to retirement of debt and preferred stock. Net of these gains, Nextel still blew away analyst expectations with third quarter earnings per share of 14c, compared to estimates of 4c per share.

Revenue was $2.3 billion, a 26% increase over last year's third quarter and domestic operating cash flow was $878 million, increasing by 67% over the same period last year.

Another positive factor influencing Nextel's performance is the improvement of its leverage situation through the reduction of debt. During this quarter alone, the company retired approximately $1.5 billion in debt and preferred stock in exchange for approximately 83 million newly issued shares of Class A common stock and approximately $394 million in cash. So far, debt reduction for the year, including third quarter numbers, is $2.6 billion.

"These transactions allow Nextel to avoid payments of approximately $4.4 billion in principal, interest and dividends over the life of these securities, or approximately $235 million in interest and dividend savings annually," said Paul Saleh, executive vice president and chief financial officer, in a news release.

This is the second quarter in a row in which Nextel has surprised market participants with better-than-expected earnings news. Following the release of second quarter results the company's bank debt jumped up by about two points to a bid of 83 and an offer of 84.

In the second quarter, Nextel reported positive net income for the first time. Income to common stockholders during the quarter was 39c per share, compared with a net loss of $426 million, or 56c a share, in second quarter 2001 and the First Call analyst consensus of a loss of 24c a share.

Terex's bank debt plummeted by about two points as the company's earnings news disappointed market participants. Third quarter results fell below analyst estimates and the outlook for the fourth quarter was relatively bleak.

The term loan B was quoted with a bid of 93 and an offer of 94 and the term loan C was quoted with a bid of 95 and an offer of 96, according to a trader.

Terex posted net income for the third quarter of $9.8 million, or 22c per share, compared to a loss of $10.9 million, or 41c per share, for the third quarter of 2001. Excluding special items, EPS was 31c, compared to 32c last year. Average analyst estimates for the quarter were an EPS of 37c.

"Our third quarter performance reflects the reality that a recovery in the second half of 2002 has not materialized," commented Ronald M. DeFeo, chairman and chief executive officer, in a news release. "Despite this we were generally in line with our expectations, except for the performance at CMI and Atlas, which had operating losses for the quarter.

Net loss for the nine months ended Sept. 30 was $92.2 million, or $2.17 per share, compared to net income of $11.2 million, or 40c per share, for the comparable period in 2001. Income excluding special items for this time period was $41.4 million, or 97c per share, compared to $35.6 million, or $1.29 per share.

"At this point in the year we had expected to see some general recovery in the economy," DeFeo commented in the release. "Although I believe we are at the bottom of the trough, there is not enough visibility to predict the timing of any recovery. Given the current economic trends, the sense that consumer confidence remains fragile and the fact that customers continue to delay purchasing decisions, I do not expect any improvement in our end markets in the near term. We anticipate overall performance for the fourth quarter of 2002 to be similar to that of the fourth quarter of 2001. We still remain cautiously optimistic about 2003, as we expect a meaningful benefit from Demag and Genie in the coming year."

Following up, the book on the Aerostructures Corp. deal was said to be closing on Thursday following a recent change in interest rates and upfront fees, according to a fund manager.

"I spoke to a guy at Lehman and he said they're closing the book down today," the fund manager said. "They got it done. People got comfortable with the company having low leverage. I think it's going to be about two times. Also, people think Airbus will be affected less than Boeing by the downturn. I'm not going to do the deal [though]. It's a scary industry to be in right now [and] given what they're offering, I don't think it's worth the chance."

Aerostructures's $165 million credit facility (B1/BB-) was flexed up by 25 basis points across the board and the commitment deadline was extended, according to market sources. Furthermore, upfront fees on the institutional tranche were changed to 100 basis points from 25 basis points, according to the fund manager.

The facility consists of a $130 million six-year term loan B with an interest rate of Libor plus 400 basis points, up from Libor plus 375 basis points, and a $35 million five-year revolver with an interest rate of Libor plus 350 basis points, up from Libor plus 325 basis points.

Lehman Brothers is the lead bank on the deal.

Aerostructures, a Nashville, Tenn. supplier of airframe structures, plans to use the proceeds from the proposed credit facility towards refinancing debt.

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