Burger King credit facility may not launch in near-term due to ongoing negotiations

By Sara Rosenberg

New York, Nov. 7 - The long talked-about Burger King Corp. credit facility appears unlikely to hit the market anytime soon.

On Thursday, Diageo plc announced that the buying group, Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners, wants to discuss potential revisions to the terms of the July sale agreement.

Meanwhile in secondary activity, Nextel Communications Inc., Federal-Mogul Corp., Owens-Illinois Inc. and Huntsman Corp. all moved slightly north during trading hours.

The Burger King buying group requested that new discussions take place due to conditions in Burger King's markets and the potential effects those conditions would have under the agreement, including their potential effects under its financing, a news release said. The agreement to sell Burger King includes performance targets that the company has to meet.

Negotiations on the transaction are currently taking place and are expected to continue over the next few weeks. "As with any such discussion this may result in no changes to the existing terms, changes to the existing terms" or no sale of Burger King, the release said.

For months, Burger King was expected to launch an $800 to $900 million credit facility to help fund the LBO. The Miami hamburger fast-food chain was also expected to sell somewhere around $500 million in high-yield bonds as well.

JPMorgan and Salomon Smith Barney are the lead banks on the credit facility.

Nextel was stronger on Thursday with about a 90 bid and about a 92 offer, according to a trader. "It may be 90½ to 92," he added. On Wednesday, the Reston, Va. communications company's bank debt was quoted around 88½ to 90.

Federal-Mogul's bank debt was up to a 59 bid from the previous day's bid of 57, according to a trader. The company reported third quarter sales of $1.345 million up 4% compared to $1.289 million in 2001. Pre-tax profit from operations was $13 million compared to a loss of $87 million in comparable period last year. Also, in the third quarter, the company reported a net loss of $73 million or 89 cents per share, compared to a net loss of $810 million or $10.31 per share in 2001. Cash flow from operations, net of capital expenditures, was $18 million, compared to $231 million for the quarter last year.

"We remain on target with our operational improvements and we are achieving our productivity goals as demonstrated by our improved operating margin," said Frank Macher, chairman and chief executive officer, in a news release. "We are strengthening our future competitive advantage through our investment today in new technology centers both in Yokohama, Japan and Plymouth, Michigan. Our customers are responding very favorably to the new products we have recently launched."

Federal-Mogul is a Southfield, Mich. supplier of automotive components.

Owens-Illinois Inc.'s term loan was trading in the low 99s, up from Wednesday's trades that took place in the mid-to-high 98s, according to a trader.

"They just issued bonds," the trader said. "The term loan was reduced slightly. [The company is] stabilizing its cash structure, balance sheet."

Owens-Brockway Glass Container Inc., a subsidiary of Owens-Illinois, sold $450 million of senior secured notes due Nov. 15, 2012 on Tuesday. Proceeds from the deal, which was upsized from $300 million, are being used to repay bank debt.

Owens-Illinois is a Toledo, Ohio manufacturer of packaging products.

Huntsman Corp. continued its recent strengthening with a bid/offer of 831/2/85, compared to the previous day's bid of 83, according to a trader. The loan went on the move last week, picking up by about seven points from a level around 76, a fund manager said.

The combined Huntsman companies reported third quarter earnings last week, including operating EBITDA of $213.9 million, compared to $134.7 million for the same period in 2001. Huntsman International had third quarter EBITDA of $132.2 million, compared to $105.5 million for the third quarter of 2001. Huntsman LLC (formerly Huntsman Corp.) had third quarter EBITDA of $71.3 million, compared to $29.9 million for the same period one year ago. Other Huntsman operating entities had third quarter 2002 operating EBITDA of $10.4 million, compared to a loss of $0.7 million for 2001.

"There's a better understanding," the trader explained in regards to why Huntsman felt stronger on Thursday.

R.H. Donnelley Corp.'s bank meeting saw a "huge turnout", according to a syndicate source, although no other detail were available at press time.

Upfront fees for the pro rata portion are 125 basis points for a commitment of $35 million and 100 basis points for a commitment of $25 million. There is a 100 basis point commitment fee on the term loan B, the syndicate source said.

The $1.55 billion credit facility consists of a $125 million six-year revolver with an interest rate of Libor plus 350 basis points, a $575 million six-year term loan A with an interest rate of Libor plus 350 basis points and an $850 million 71/2-year term loan B with an interest rate of Libor plus 400 basis points, according to market sources.

Bear Stearns, Deutsche and Salomon Smith Barney are the lead banks on the R.H. Donnelley deal, which will be used to help fund the acquisition of Sprint Corp.'s directory publishing business and refinance debt.

R.H. Donnelley is a Purchase, N.Y. marketer of yellow pages advertising.

Also held Thursday was Patriot Media and Communications LLC's bank meeting for a $165 million credit facility, consisting of $65 million pro rata with an interest rate of Libor plus 375 basis points and $100 million term loan B with an interest rate of Libor plus 400 basis points. Bank of New York is the lead bank on the deal, which will be used to help fund the New Jersey cable company's spin off from RCN Corp. with Spectrum Equity Investors as equity sponsor.

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