Allied Waste up on debt reduction; Land O'Lakes strengthens on investor confidence

By Sara Rosenberg

New York, Sept. 18 - Allied Waste Industries Inc. strengthened on Wednesday following news that the company intends to use proceeds from a $250 million senior note offering to pay down parts of its term loans A, B and C. Meanwhile, Land O'Lakes Inc. is also moving upwards as investors shake off doubts stemming from weak financial results in the first and second quarter.

"Allied Waste traded up about a point," a trade said. The loan is now being quoted with a bid of 98¼ and an offer of 991/4, according to the trader.

Late Tuesday Allied Waste announced that it will sell $250 million of senior notes due 2012 in a Rule 144A offering this week. The company also said that it anticipates repaying $200 million of debt in the third quarter ending Sept. 30 using operating cash flow and cash from the balance sheet.

However, not all is roses for Scottsdale, Ariz. waste services company, as some analysts express concern that the company's bank debt will need to be renegotiated in the long-term.

"We believe that the company will generate sufficient cash flows to meet debt maturities through fiscal 2003. However, in 2004, Allied's bank debt maturities become significant, and we believe that the company will need to amend the terms of the bank agreement in order to avoid selling assets to meet the maturities," a Friedman Billings Ramsey research report said. "While management has expressed the intention to refinance the bank credit agreement in late 2003 or early 2004, there can be no guarantee that they will be successful in terming out the maturities and avoid selling assets or restructuring the entire balance sheet. Allied has a high degree of senior secured leverage, relative to peers Republic Services and Waste Management."

Land O'Lakes bank debt has received some attention from investors as prices have been edging upwards, according to a buy-side source. "The loan traded down in the 87/88 range and now it's slowly ticking up to around the 89/90 range," the buy-side source said.

When asked what prompted the drop, he explained, "They had weak first and second quarter numbers." However, the company held a meeting last week in New York to discuss the financial results.

"They gave us an idea of why they had soft numbers and made people understand that it's kind of a cyclical/seasonal event and not a decline in business." As a result of the increased investor confidence, the bank debt has seen a slight improvement in secondary levels.

For the first quarter, the Ardent Hills, Minn. dairy co-op reported a net loss of $1 million, as compared to net earnings of $13 million for the first quarter of 2001. Sales for the quarter were $1.52 billion, up 10.8% from one year ago, primarily the result of the Purina Mills acquisition. Company official indicated that factors contributing to the results included "soft early-year demand in key Dairy Foods product areas, weather-related delays in the agronomy season, expenses related to the integration of the recently acquired Purina Mills into Land O'Lakes Farmland Feed, and the impact of high input (milk) costs on the company's Upper Midwest dairy manufacturing operations," a news release said.

For the second quarter, net earnings were $48.3 million. Sales for the quarter were $1.4 billion, up 2.9% over the second quarter of 2001. Year-to-date, the company reported sales of $2.9 billion, up 6.8% over one year ago, and $47.3 million in net earnings, down from $57.2 million for the first two quarters of 2001. Key elements in the earnings decline included "ongoing competitive pressures on Upper Midwest dairy manufacturing operations, costs related to the start-up of the Cheese & Protein International joint venture, and commodity price declines in the feed, egg, and swine industries," a news release said.

In follow-up news, US Airways' recently launched $500 million debtor-in-possession financing facility, like the Rayovac Corp. loan, is said to be having a difficult time syndicating. "I don't think they're getting much interest in it," a fund manager said. "There are some quirky things about the deal. Collateral is a little weak. They're giving some airplanes but in this economy there are a lot of parked airplanes.

The loan consists of a $250 million revolver with an interest rate of Libor plus 350 basis points and a $250 million term loan with an interest rate of Libor plus 350 basis points. Both tranches are due on the earlier of Sept. 30, 2003 or completion of reorganization.

According to the fund manager, interest rates on the loan will probably be flexed up in order for the deal to get done.

Credit Suisse First Boston is the lead bank on the Arlington, Va. airline's DIP.

One new deal that didn't encounter any difficulties is Veridian Corp.'s facility, which will be used to help fund the acquisition of Signal Corp.

"Veridian is supposed to close pretty soon, and that went really well," the fund manager said. "They basically added $140 million to the existing facility. It was supposed to be $160 million but they lowered it because there was extra cash on hand for the acquisition. I heard that they had $250 million in orders."

The final size of the term loan B is $270 million and the revolver will be at least $80 million bringing the total facility size to $350 million, according to a syndicate source. The deal may be upsized further by the end of the week, the syndicate source added. Wachovia is the lead bank on the deal.

The 5.75-year term loan has an interest rate of Libor plus 350 basis points and the 4.75-year revolver has an interest rate of Libor plus 300 basis points.

The deal supposedly went out to existing lenders first and these lenders were allegedly told that if they committed to the new loan, they would receive the amount they committed for. A bunch of other institutions were invited to join in the loan, but allocations to the new institutions may be on the light side, the fund manager said.

"I think they're allocating tomorrow. All the interest should make this trade pretty well," the fund manager concluded.

Veridian is an Arlington, Va. information technology and information security products provider.

Coming up in the primary, Genesee & Wyoming is scheduled to hold a bank meeting on Thursday regarding its new $250 million five-year senior secured revolving credit facility, according to a syndicate source. Fleet National Bank is the lead bank on the deal.

Interest rates on the loan are not currently being disclosed at this time, the syndicate source told Prospect News.

Proceeds will be used to refinance the Greenwich, Conn. railroad operator's existing credit facility, which was primarily used for acquisitions, and to give the company additional capacity.

In other primary news, market talk is that Precise Technology Inc. launched a new $115 million credit facility on Wednesday, consisting of a $35 million revolver with an interest rate of Libor plus 400 basis points, a $50 million term loan A with an interest rate of Libor plus 400 basis points and a $30 million term loan B with an interest rate of Libor plus 450 basis points, market sources said. Wachovia is said to be the lead bank on the deal, but the syndicate was not immediately available to confirm this information.

Precise Technology is a North Versailles, Pa. manufacturer of injection molds and molded plastic products.

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