Nextel strengthens to plus-par levels on rating agencies' upgrades

By Sara Rosenberg

New York, July 22 - Nextel Communications Inc.'s term loan B and term loan C were slightly higher on Tuesday following ratings upgrades by both Moody's Investors Service and Standard & Poor's. The tranches were quoted at par 1/8 bid, par ½ offer, according to a trader.

"It's up a touch. I don't think the upgrade was that unexpected," the trader added.

On Tuesday, Moody's upgraded Nextel and its subsidiary Nextel Finance Co. including raising its senior secured credit facility to Ba2 from Ba3, senior notes to B2 from B3 and preferred stock to Caa1 from Caa2. The outlook is stable.

Moody's said the upgrade reflects Nextel's continued outperformance, with revenue per user (ARPU) continuing to remain well above the industry average, churn well below average and subscriber growth also better than the competition, all of which has helped the company generate free cash flow in each of the past four quarters.

The upgrade also reflects the considerable improvement to the company's balance sheet both as a result of the cumulative repurchase through July 15 of $3.7 billion of senior notes and preferred stock for a combination of cash and common stock, as well as the improvement to the debt maturity profile from those repurchases and its senior notes offering, priced Tuesday, Moody's said.

On Monday evening, S&P upgraded Nextel including raising its senior unsecured debt to B+ from B, preferred stock to B- from CCC+ and Nextel Finance Co.'s senior secured debt to BB from BB-. The outlook is stable.

S&P said the upgrade reflects its more favorable assessment of Nextel's intermediate- term competitiveness and, secondarily, an improvement in financial leverage.

Based on an assessment of Nextel's network and established niche in the business sector, S&P said it does not expect Nextel to be materially challenged by competitors through mid-2005.

Nextel also has strengthened its balance sheet in the past year, S&P said. The combination of solid EBITDA growth and privately negotiated debt-for-equity exchanges helped the company to lower debt-to-annualized EBITDA to about 2.9x in second quarter 2003 from about 4.1x in the same quarter a year ago.

Late last week, the Reston, Va. wireless company's bank paper moved up by about half a point to the par level following the company's earnings release that included an upward revision of financial guidance for full-year 2003 and announcement of a proposed note offering.

Included in the financial results for the second quarter was income available to common stockholders of $281 million, or $0.27 per diluted share, revenue of $2.6 billion, a 19% increase over the previous year's second quarter, operating income before depreciation and amortization of $1 billion, an increase of 23% over the second quarter of the prior year, and the addition of approximately 591,000 subscribers, bringing total subscribers to 11.7 million at June 30.

Revised guidance for full-year 2003 includes free cash flow of $600 million or more, up from $500 million, earnings per share of $1.00 or more, up from at least $0.75, operating income before depreciation and amortization of $3.9 billion or more, up from $3.8 billion, capital expenditures of $1.8 billion or less, which is unchanged from previous expectations, and net subscriber additions of 1.9 million or more, up from 1.7 million.

In addition to the earnings news, Nextel also announced last week that it intends to offer $1 billion of senior serial redeemable notes due 2015, with proceeds earmarked to redeem all its 11.125% series E exchangeable preferred stock and to repurchase its outstanding 10.65% senior redeemable discount notes due 2007. Those notes were priced Tuesday to yield 7.4%.

Overall though, it was once again reported to be relatively quiet in the secondary, which on the one hand can be attributed to the usually expected summer lull and on the other can also be attributed to demand outweighing supply.

"This whole market is just bids," one trader claimed. "It's just another quiet day."

Meanwhile, following up, Building Materials Holding Corp.'s $300 million credit facility is already half to about three quarters subscribed following Monday's 4 p.m. ET bank meeting, a source close to the deal told Prospect News on Tuesday.

"It went well. It was a well attended meeting. Good initial interest. Very supportive bank groups. Commitments have been received," the source added.

The facility consists of a $125 million seven-year term loan B with an interest rate of Libor plus 325 basis points and a $175 million five-year revolver with an interest rate of Libor plus 250 basis points, according to a syndicate source.

Wells Fargo is the sole lead arranger and bookrunner on the deal.

Proceeds will be used to refinance the company's existing credit facility, which is scheduled to mature Dec. 1, 2004 and consists of a $110 million term loan A and a $190 million revolver. The existing facility has 13 banks participating in the syndicate group.

Building Materials is a San Francisco distributor of building materials and services.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.