Nextel hits 88; Aerostructures meets doubt; Burger King now November business

By Sara Rosenberg

New York, Oct. 15 - Nextel Communications Inc. once again grabbed market attention as its term B and C bank debt traded in the high 80's and settled back down to quotes of 861/2/871/2. In primary news, Aerostructures Corp.'s loan is being met with investor hesitancy, Burger King Corp. is now expected in November and Integrated Defense Technologies Inc.'s loan is expected to close without a hitch despite revised earnings.

Nextel "traded pretty high at around 88", a fund manager said, attributing the gain to the expectation that third quarter earnings will be "pretty favorable". The bank debt ended the day around previous levels but still stronger than in the middle of last week with a bid around 86½ and an offer around 871/2, a trader said, explaining that "some dealers are pushing it up. The company is doing well and people are buying the story."

The Reston, Va. telecommunications company's bank debt has been experiencing better quotes since late last week. On each occasion market participants offered up various reasons as to why Nextel keeps moving south including earnings expectations, sector firmness, improvement in Nextel's bonds and stocks, market technicals and increased investor confidence as the company allayed fears on financial reporting issues raised by a JPMorgan research note.

Nextel was trading stronger on Friday at 86 7/8 and was labeled as "the most active" name in the secondary. The loan was quoted with a bid of 85 and an offer of 87 on Thursday, up from a previous bid of 84 and an offer of 86.

The Aerostructures Corp. deal is meeting some market skepticism as pricing is viewed as light for the sector. The recently launched $165 million credit facility (B1/BB-) consists of a $130 million six-year term loan B with an interest rate of Libor plus 375 basis points and a $35 million five-year revolver with an interest rate of Libor plus 325 basis points. Lehman Brothers is the lead bank on the deal.

"I spoke to a sales guy at Lehman who said they're about halfway there, which I really doubt," a fund manager told Prospect News. "Something will have to change. I don't know anybody that would go out there and pay par or close to par for that industry. DeCrane Aircraft (Holdings Inc., an El Segundo, Calif. supplier of aviation products and services) is trading in the high 80's to low 90's and the spread is 450. If you can buy that, why pay close to par for a spread of 375?"

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

Since it was first announced, details on Burger King Corp.'s debt financing have been hazy. The most recent topic of discussion is timing. Originally, the loan was expected to launch in September/October, but current talk has the bank meeting "pushed back" until some time in November, a fund manager said.

"They're probably waiting on the bond market," he explained. "It was kind of hot but now it's cooling off."

One high yield source told Prospect News that the bank meeting was pushed back twice, which, he speculated, means either that the banks are waiting for the high yield market to stabilize a little bit since timing on the bond deal and the bank deal have to be a little bit synchronized or that there is something wrong with the credit.

As far as structure is concerned, there have been some numbers floating around the market with the bank debt being discussed in the zip code of $800 to $900 million, while the bond offering could potentially be for $500 million, depending on the purchase price, a sell-side source previously told Prospect News.

JPMorgan and Salomon Smith Barney are the lead banks on both the bank debt and the bonds.

Proceeds are being use help fund the leveraged buyout of Burger King by equity sponsors Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners from Diageo plc.

Burger King is a Miami, Fla. hamburger fast-food chain.

Integrated Defense Technologies Inc. held a lenders-only call on Tuesday to update earning expectations, according to a fund manager. The company held a call earlier in the day for equity analysts and the general public.

Currently, the company has a $130 million add-on term loan (Ba3/BB-) with an interest rate of Libor plus 325 basis points in the primary marketplace. CIBC World Markets is the lead bank on the deal, which will be used to help fund acquisition of a BAE Systems division.

"When I talked to CIBC last Friday, the book was almost two times oversubscribed," the fund manager said. "I don't really see people pulling out [on the loss of some contracts]. With the potential for war in Iraq, people want to hold on to defense names. They expect to close [the add-on term loan] by the end of the month."

Integrated Defense cut its earnings outlook due to "the competitive loss of certain programs and delays in other program awards," a news release said. The company now anticipates third quarter revenue to be in the range of $75 to $77 million, earnings to be in the range of $0.21 to $0.22 per share, and EBITDA to be $11.3 to $11.5 million. Fourth quarter forecasts include revenue in the range of $84 to $88 million, earnings in the range of $0.31 to $0.33 per share and EBITDA of $14.6 to $15.0 million. For 2002, the company expects revenue to be $300 to $305 million, earnings per share to be $0.84 to $0.87 and EBITDA to be $46.5 to $47.5 million.

The numbers do not include the BAE Advanced Systems acquisition, which is scheduled to close in the fourth quarter and be accretive in 2003, the news release added.

Integrated Defense is a Huntsville, Ala. provider of electronics and technology products to defense and intelligence industries.

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