United Rentals, Accredo lower; Interstate Bakeries investors' trying to get a read on levels

By Sara Rosenberg

New York, Aug. 30 - United Rentals Inc. and Accredo Health Inc. weakened in Monday's secondary market as negative news - an SEC investigation for United Rentals and a reduction in the 2005 profit forecast for Accredo - surfaced on both names. Meanwhile, Interstate Bakeries Corp. couldn't find an accurate level as investors were trying to make sense of the latest 10-K filing delay and the hiring of a turnaround firm.

United Rentals' bank debt fell by about a point to par 3/8 bid, 101 offered following the announcement that the Securities and Exchange Commission is conducting a non-public, fact-finding inquiry into the company, according to a trader.

Sub poenas for certain accounting records were issued but did not specify "the scope or specific purpose of the inquiry," the company said in a news release.

In reaction to this announcement, Standard & Poor's said it placed United Rentals' BB corporate credit rating and other ratings, including the BB secured bank loan rating, on CreditWatch with negative implications.

"The lack of specific information reflected in the company's announcement and the possibly broad parameters of the investigation are a cause of concern," said S&P credit analyst John Sico, in a news release. "We will review events as further information becomes available and could lower the ratings if events unfold that have a material effect on credit quality or are detrimental to the company's liquidity."

United Rentals is a Greenwich, Conn., equipment rental company.

Accredo dips

Accredo's bank debt fell by about an eighth to a quarter of a point to par 3/8 bid, par 7/8 offered following news that the company lowered its fiscal 2005 earnings per share estimate to a range of $1.45 to $1.53 from $1.88 to $1.93, according to a trader.

The lowered guidance is a result of many events, including the receipt of additional information on the impact of recently implemented reimbursement rates from MediCal and Medicare, lower reimbursement from some payors for intravenous immunoglobulin, Aetna's decision to move some of its specialty pharmacy business from Accredo to a joint venture partially owned by Aetna and an approximately $4.4 million expense in September due to the recent credit facility amendment, according to a company news release.

Fiscal 2005 revenue estimates remain unchanged at $1.85 billion to $1.90 billion.

The company also reported results for its fourth quarter and year ended June 30. For the quarter, net income increased to $19.8 million, or $0.40 per diluted share, compared to $17.2 million, or $0.36 per diluted share, for the same period in fiscal 2003, and revenues increased to $382.8 million compared to $329.1 million last year. For the year, net income was $78.3 million, or $1.60 per diluted share, compared to $29.5 million, or $0.61 per diluted share, in fiscal 2003, and revenues increased to $1.517 billion compared to $1.373 billion in fiscal 2003.

However, this financial information is unaudited, and the audit will not be completed until Sept. 13, the day of the company's 10-K filing deadline.

Accredo is a Memphis, Tenn., provider of specialty retail pharmacy services, clinical services, reimbursement services and delivery services.

Interstate Bakeries fate unclear

Quotes on Interstate Bakeries' were nowhere to be found, but there was definitely interest in the name on both par and distressed desks as traders fielded a number of inquiries from market participants trying to distinguish where levels should be now that the company delayed its 10-K filing for a second time, according to sources.

"We're still trying to figure that one out. The news is still being digested," one trader said regarding Interstate Bakeries' bank debt levels, adding that he wouldn't even speculate on levels since at this point they probably wouldn't be accurate.

"It was in the low 98s prior to them postponing their 10-K again," a second trader said. "I would imagine 97, 98 now [but] you have to have more people in to see how they react."

On Monday, the company revealed that it missed its Friday form 10-K filing deadline for the year ended May 29 and is in talks with representatives of the agent bank under its senior secured credit facility regarding the situation.

The delays resulted from initial data entry and training deficiencies in Interstate Bakeries' newly implemented financial reporting systems, uncertainty regarding anticipated fiscal 2005 first quarter results, uncertainty as to whether the company will be in compliance with covenants in its senior secured credit facility agreement during fiscal 2005 and the possibility that the report of its independent auditors with respect to the fiscal 2004 financial statements might contain a going concern paragraph, the company explained in a news release.

Furthermore, the company retained Alvarez & Marsal to pursue an effective going forward business strategy.

The company had previously received an extension to Friday for the filing because of delays in finalizing its audited financial statements arising from the previously announced investigation of the manner for setting workers' compensation reserves and other reserves.

Interstate Bakeries is a Kansas City, Mo., wholesale baker and distributor of fresh baked bread and sweet goods.

Ply Gem closes

Ply Gem Industries Inc. closed on its $126 million incremental credit facilities (B1) consisting of a $111 million incremental term loan with an interest rate of Libor plus 250 basis points and a $15 million five-year incremental revolver with an interest rate of Libor plus 250 basis points. Pricing on both tranches is in line with existing pricing being that the company is just layering on the new debt.

Originally, the company came to market with $141 million in term debt but downsized the tranche following a $30 million upsizing to its bond offering. The $135 million add-on to the company's 9% notes of 2012 priced at 100.25 on Aug. 18.

UBS Securities and Deutsche Bank were the joint lead arrangers on the deal, with UBS left lead. JPMorgan is a co-manager.

Proceeds from the term loan and the bonds, combined with $6 million of revolver borrowings, $36 million of proceeds from the sale and leaseback of seven Ply Gem properties and one MW property and $34.3 million of proceeds from the sale of equity securities, were used to fund the acquisition of MW Manufacturers Inc. from Investcorp for about $320 million in cash.

"We expect the combination of Ply Gem and MW will enable us to capitalize on attractive market opportunities and provide us with a great platform to accelerate our growth in the window segment. MW's products are extremely well respected and utilized in both the new construction and remodeling markets," said Lee D. Meyer, president and chief executive officer of Ply Gem, in a company news release.

Ply Gem is a Kearney, Mo., manufacturer and distributor of products for use in the residential new construction, do-it-yourself and professional renovation markets. MW is a Rocky Mount, Va., manufacturer of vinyl, clad-wood, vinyl-wood, wood and composite window and patio door products.

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