UAL DIP repricing may crash and burn as investors digest mechanics' refusal of labor pact

By Sara Rosenberg

New York, Jan. 31 - The fate of UAL Corp.'s amendment proposals to its debtor-in-possession financing facility is still unclear as the company has both positives and negatives for investors to consider, but recent news that the company's mechanics union rejected a proposed labor pact certainly could really put a kink in the company's plans.

Last Wednesday, the parent company of United Airlines Inc. held a conference call to ask lenders for a repricing of its entire $1 billion DIP (comprised of an $800 million term loan and a $200 million revolver) to Libor plus 450 basis points from Libor plus 500 basis points, and to remove the 3% Libor floor that is currently in place.

In addition, UAL wants to extend the DIP's maturity date to Sept. 30 from June 30 and to adjust its EBITDAR covenant lower to adjust for business issues.

"People are still sort of digesting it. By extending the maturity to 9/30, the company is basically saying that odds of being repaid within nine months is pretty good. It's bulletproof paper at 450," the market source said.

However, on the flip side, some seem to think that UAL's current situation doesn't warrant a pricing reduction, a buyside source explained.

"It's probably going to take a little tweaking. I don't think people are going to accept a huge price cut with the company situation," the buyside source said.

Impacting the situation in a pretty large way is the mechanics union's recent decision to turn down UAL's proposed wage and benefit cuts, which could affect the company's plan for emergence from Chapter 11.

The "news that unions rejected the labor pact [is]...working against them," the market source said.

"Mechanics may go on strike if they don't get treated right and there's no way lenders would reduce their pricing [if that happens]," the buyside source added.

Although some good news did surface on the negotiation front - with reports on Monday claiming that UAL flight attendants and pilots ratified new contracts, agreeing to pay cuts that would save the company hundreds of millions of dollars a year - it does not take away from the mechanics' labor contract dispute since accords need to be reached with all unions before the company can exit from bankruptcy, the buyside source concluded.

For the repricing and the removal of the Libor floor, the company needs 100% lender approval. For the covenant changes, the company only needs 51% approval.

No amendment fee is being offered to lenders.

Consents are due Feb. 9.

JPMorgan and Citigroup are the lead banks on the deal, with JPMorgan the left lead.

UAL, an Elk Grove Township, Ill., airline carrier, filed for Chapter 11 on Dec. 9, 2002.

DynCorp books close

DynCorp International LLC closed the books on its $420 million credit facility (B2/B+) on Monday, with the $345 million term loan B reaching oversubscription levels at an expected pricing level of Libor plus 275 basis points - the high end of the Libor plus 250 to 275 basis points price talk, according to a market source.

The facility also contains a $75 million revolver with an interest rate of Libor plus 250 basis points.

The term loan B was offered to investors at par. Upfront fees on the revolver were 125 basis points for a $25 million commitment, 75 basis points for a $15 million commitment and 50 basis points for a $10 million commitment.

Goldman Sachs and Bear Stearns are the lead banks on the deal, with Goldman the left lead.

Proceeds from the credit facility and a bond offering will be used to help fund Veritas Capital's acquisition of DynCorp from Computer Sciences Corp. for $850 million, with $775 million in cash payable at closing plus $75 million of senior preferred stock. The acquisition is expected to be completed in the first quarter of 2005.

The company is a Fort Worth, Texas, provider of mission critical support to its customers, primarily the U.S. government.

Ntelos oversubscribed

Ntelos Inc.'s $660 million senior secured credit facility, which just launched last Tuesday, blew out with the deal "multiply oversubscribed" ahead of Friday's commitment deadline and has been oversubscribed for a few days now, according to a market source.

Some positives working in favor of the deal are relatively low leverage - 5x through the second-lien and 3.1x through the first lien - and it being a pretty straightforward deal from a credit perspective, a source previously explained.

The facility consists of a $400 million first-lien term loan talked at Libor plus 275 basis points, a $225 million second-lien term loan talked at Libor plus 550 basis points and a $35 million revolver talked at Libor plus 275 basis points.

Both term loan tranches are being offered to investors at par.

Morgan Stanley Senior Funding Inc. and Bear Stearns & Co. Inc. are joint lead arrangers and joint bookrunners on the deal, with Morgan Stanley the left lead and administrative agent.

Proceeds from the will be used to help in the recapitalization and sale of the company to affiliates of Quadrangle Capital Partners LP and Citigroup Venture Capital.

In the first step of the transaction, Ntelos will refinance its existing debt and repurchase up to 75% of its existing equity in a self-tender offer at a price of $40 per common share.

Following that step, Quadrangle and CVC will purchase up to 24.9% of the post-recapitalization equity of the company, also at a price of $40 per share.

And, after receipt of regulatory approvals, Quadrangle and CVC will acquire the remainder of the company's equity, at the same $40 per share price, in a merger transaction.

The closings of the refinancing and initial stock repurchase by the company are not conditioned on the sale of any equity to Quadrangle and CVC.

Ntelos is a Waynesboro, Va., regional integrated communications provider.

JPMorgan conference snags business

Overall, the secondary loan market was quiet on Monday as some participants' attention was redirected to the JPMorgan Annual High-Yield Conference in Miami Beach, Fla., according to traders.

The conference, which began on Monday, is scheduled to last through Wednesday.

Accuride closes

Accuride Corp. closed on its $675 million credit facility (B2/B+) consisting of a $550 million seven-year term loan B with an interest rate of Libor plus 225 basis points and a step down after six months to Libor plus 200 basis points if total leverage is 31/2x, and a $125 million five-year revolver with an initial interest rate set at Libor plus 250 basis points.

Citigroup Global Markets Inc. and Lehman Brothers Inc. were joint lead arrangers on the credit facility, with Citigroup the left lead. UBS Securities LLC acted as documentation agent.

Proceeds from the credit facility, along with proceeds from a bond offering, were to be used to refinance debt in connection with the acquisition of Transportation Technologies Industries Inc. Both Accuride and Transportation Technologies' senior bank debt and Transportation Technologies' subordinated debt are being refinanced.

Accuride is an Evansville, Ind., manufacturer and supplier of wheels for heavy/medium trucks and trailers. Transportation Technologies is a Chicago manufacturer of truck components for the heavy and medium-duty trucking industry.

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