The Pantry $360 million credit facility may meet investor hesitation due to high gas prices

By Sara Rosenberg

New York, March 5 - The Pantry Inc.'s $360 million credit facility, launched Wednesday, met with some market skepticism, not because the deal itself was unattractive but because the overall sector and the company's dependency on gasoline sales are currently being viewed negatively.

"We're not interested," a fund manager said. "We don't really like the business because it probably depends too much on underlying gas prices because they make a margin on gas prices. In a rising gas price environment margins will shrink and people travel less so volume shrinks.

"[Also the sector], doesn't generate a lot of excess cash flow because they have to spend a fair amount each year on capital expenditures," the fund manager added.

The Sanford, N.C. convenience store retailer's loan consists of a $250 million four-year term loan with an interest rate of Libor plus 400 basis points, a $60 million four-year revolver with an interest rate of Libor plus 400 basis points and a $50 million second-lien term loan with an interest rate of Libor plus 600 to 650 basis points.

Wachovia is the lead bank on the deal with Wells Fargo as co-lead and syndication agent.

Meanwhile, The Goodyear Tire & Rubber Co.'s $1.3 billion asset-based credit facility due 2006, this is scheduled to launch Friday, may not be priced high enough for investors, according to one market professional. JPMorgan and Citigroup are the lead banks on the loan.

The new loan is expected to consist of an institutional tranche in the range of $500 to $700 million with price talk of Libor plus 350 basis points. The remainder of the facility will be in the form of a revolver, sources said.

"Pricing is in line with the credit rating but it's a tough credit," a market professional said. "It's hard to get incredibly comfortable with it. I would say that pricing is a little aggressive of the story. It's a business that's wallowing, they're not executing and it's a tough auto market."

Asked for examples of how the company is not executing, the market professional explained that Goodyear should have taken better advantage of Firestones recall problems.

The company is also looking to amend and restructure its other credit facilities. When all is said and done, the Akron, Ohio tire company is anticipated to have about seven different tranches under its credit agreements, according to sources.

"It almost implies by complication that they need to get it done," the market professional said about all the changes the company is currently seeking. "Pricing it about fair for the rating may not cut it."

The planned $3 billion credit facility for Allied Waste Industries Inc. is now expected to launch during mid-March "so the company can get numbers together," according to a fund manager. JPMorgan, Citibank, Credit Suisse First Boston, Deutsche Bank and UBS Warburg are the lead banks on the deal.

The loan consists of a $1.5 billion revolver with price talk of Libor plus 300 basis points and a $1.5 billion term loan B with price talk of Libor plus 350 basis points.

The Scottsdale, Ariz. solid waste management company will use proceeds from the facility to refinance existing debt.

Once again, in the secondary, Nextel Communications Inc. continued its upward climb, according to market sources. The term loan B and term loan C were quoted were quoted with a 96¾ bid and a 97¼ offer, compared to Tuesday's quotes of a 96¾ bid and a 97¼ offer by one trader and a 96¼ bid and a 96 7/8 offer by a second trader. On Monday, the term loans were trading at 96 5/8.

The term loan A was quoted with a 93 bid, 93½ offer, compared to Tuesday's levels of a 92¼ bid, 93¼ offer by one trader and a 91 bid, 92¼ offer by a second trader.

Lastly, the revolver was quoted with a 91¾ bid, 92¼ offer, compared to Tuesday's quotes of a 91 bid, 91½ offer.

"It's definitely in good shape," a trader said in regards to Nextel's performance.

The Reston, Va. wireless company has been moving higher and higher with each passing day mainly because the company has gained the reputation of being a good credit. This favorable reputation stems from never disappointing investors with regards to earnings announcements and ability to add customers.

In the distressed sector, Ntelos Inc.'s bank debt was quoted unchanged in the mid-70s Wednesday, according to a distressed debt trader. Ntelos made a voluntary Chapter 11 bankruptcy filing Tuesday in the U.S. Bankruptcy Court for the Eastern District of Virginia.

The company also obtained a $35 million debtor-in-possession credit facility and obtained court approval Wednesday to access up to $10 million of the funds for regular business operations.

Ntelos is a Waynesboro, Va.-based communications company.

(Carlise Newman contributed to this story.)

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