Nextel's bank paper heads up by half a point on positive earnings announcement

By Sara Rosenberg

New York, July 17 - Nextel Communications Inc.'s term loan B and term loan C were quoted at par on Thursday, half a point higher than previous levels, according to a trader, 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.

Late Wednesday night, the Reston, Va. wireless company released "record financial results" for the second quarter 2003. Income available to common stockholders was $281 million, or $0.27 per diluted share, revenue was $2.6 billion, a 19% increase over the previous year's second quarter, operating income before depreciation and amortization was $1 billion, an increase of 23% over the second quarter of the prior year, and approximately 591,000 subscribers were added during the quarter, bringing total subscribers to 11.7 million at June 30.

"This quarter represents Nextel's strongest performance to date," said Tim Donahue, president and chief executive officer, in a news release. "We are delivering on every front and producing record earnings, record subscriber additions and garnering the most valuable customers in the industry."

"Our operating trends once again translated into superior results," said Paul Saleh, executive vice president and chief financial officer, in the release. "We've turned in record results this quarter including operating income before depreciation and amortization of $1.0 billion with a 42% margin, and free cash flow grew to $314 million.

"We are ahead of our expectations, and have thus revised upward our financial guidance for the full year. Additionally, our consistently strong operating performance and substantial liquidity position continue to allow us to de-lever the balance sheet. Including the series D preferred stock which was called on July 15, we have retired approximately $4.3 billion in debt and preferred stock since the first quarter of 2002, enabling the company to avoid approximately $7.1 billion in principal, interest and dividend obligations."

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.

The 2003 guidance modifications reflect positive business trends through mid-year.

In addition to the earnings news, Nextel also announced late Wednesday night 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.

"Currently about two-thirds of our capital structure is callable. We have the flexibility to opportunistically access the capital markets to extend maturities and lower our cost of debt," Saleh stated in a conference call regarding the $1 billion note offering.

In follow-up news, Infinity Property and Casualty Corp. closed on its new $200 million seven-year senior secured term loan (Baa3/BBB). Lehman Brothers Inc. and Bear, Stearns & Co., Inc. acted as joint lead arrangers on the deal.

The term loan carries an interest rate of Libor plus 250 basis points.

Initially the deal was launched as a $180 million term loan with price talk of Libor plus 300 basis points, but was upsized and reverse flexed due to overwhelming demand. For example, during the bank meeting, it was said that there were already $90 million of orders in the books and the books were then closed within a week of launch since the deal was well oversubscribed.

Amortization of 5% in year one, 5% in year two, 7 ½% in year three, 10% in year four, 17½% in year five, 25% in year six and 30% in the final year was also listed as a plus for the deal.

Furthermore, under the credit agreement, there is a provision that allows the company to secure a revolving credit facility of up to $20 million, according to a news release.

Proceeds are being used by the Birmingham, Ala. auto insurance policy provider to repay a $55 million 10-year note payable to American Financial Group Inc., its ex-parent company, for working capital and for general corporate purposes.

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