Idearc, NRG move around on numbers; Ford, GM rise progresses; Precision Drilling firms timing

By Sara Rosenberg

New York, Oct. 30 - Both Idearc Inc. and NRG Energy Inc. came out with earnings on Thursday, but while Idearc's term loan B headed lower on poor results, NRG's strip of institutional bank debt moved higher on strong numbers and raised guidance for the year.

In more trading news, Ford Motor Co. and General Motors Corp. continued to see their term loan levels climb higher on more of the same positive rumblings that were floating around earlier this week, and the overall cash market and LCDX 10 were stronger.

Over in the primary, a specific date for the Precision Drilling Trust retail bank meeting emerged and it was revealed that the deal already successfully completed a senior managing agents round.

Idearc weakens with financials

Idearc's term loan gave up some ground in trading after the company released third-quarter numbers that investors found to be "very weak," according to a trader.

The term loan B was quoted at 41 bid, 43 offered, down from Wednesday's levels of 44½ bid, 45½ offered, the trader said.

For the third quarter, Idearc reported revenues of $735 million, down 7.1% from $791 million in the comparable period last year.

Net income for the quarter was $73 million, down 37.6% from $117 million in 2007, and adjusted net income was $76 million, down 40.6% from $128 million last year.

Also, EBITDA for the quarter was $298 million, a 21.6% from $380 million last year, and adjusted EBITDA was $302 million, a 24.1% decrease from $398 million last year.

Idearc hires advisors

Idearc also said on Thursday that it has retained Merrill Lynch & Co. and Moelis & Company as financial advisors in connection with the review of alternatives related to its capital structure.

"Idearc's financial results in the third quarter reflect the significant challenges our clients are facing as they contend with difficult economic conditions across the nation," said Scott W. Klein, chief executive officer, in a news release. "We remain focused on accelerating revenue, reducing expenses and improving margins, as well as creating a high-performance culture. We are acting aggressively and quickly to adjust our organization and market approach to meet the challenges ahead of us."

In addition, the company announced that on Oct. 24, it initiated borrowings of $247 million under its existing $250 million revolving credit facility.

Proceeds from the revolver draw will be used for general corporate purposes.

Idearc is a Dallas-based provider of yellow and white page directories and related advertising products.

NRG better on positive earnings

NRG's strip of letter-of-credit facility and term loan debt traded stronger after the company announced third-quarter numbers that were quite good and increased full-year guidance, according to a trader.

The strip of bank debt was quoted at 87¼ bid, 88¼ offered, up from previous levels of 86 bid, 87 offered, the trader said.

For the third quarter, the company announced net income of $784 million, or $2.83 per diluted common share, compared to $268 million, or $0.93 per diluted common share, for the previous year's third quarter.

Revenues for the quarter were $2.69 billion, up from $1.772 billion in 2007.

And, adjusted EBITDA for the quarter was $758 million, up 7% from $710 million last year.

"The company has delivered exceptional quarterly performance in the face of the unprecedented disruption of our national financial system," said David Crane, president and chief executive officer, in a news release.

NRG raises outlook

Also on Thursday, NRG said that it was increasing its 2008 adjusted EBITDA guidance by $100 million, to $2.4 billion from $2.3 billion.

"In a market where other companies are struggling to preserve liquidity and maintain earnings, NRG is reporting increased liquidity and raising earnings guidance for 2008. These results illustrate the strength of our hedging program, our unique first-lien structure, our fiscal discipline and our attention to managing business and counterparty risk. These are the business principles which remain fundamental to NRG," Crane added in the release.

Cash flow from operations guidance for 2008 remained at $1.5 billion, but excluding forecasted collateral changes, cash flow from operations is $1.7 billion or $114 million above prior guidance.

For 2009, the company estimates adjusted EBITDA at $2.2 billion and free cash flow before environmental and repowering expenses at $1 billion.

NRG is a Princeton, N.J.-based owner and operator of diverse power generation portfolios.

Ford, GM trade up

Ford and General Motors posted some more gains during the Thursday session as market players continued to react favorably to the recent slew of positive auto sector chatter, according to traders.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 57 bid, 57 ½ offered, up from the previous day's levels of 53½ bid, 55½ offered, one trader said.

General Motors, a Detroit-based automotive manufacturer, saw its term loan quoted a point or two in back of Ford's term loan, up from Wednesday's levels of 52 bid, 55 offered, the first trader added.

However, a second trader had General Motors' term loan quoted at 56½ bid, 57½ offered, up from 52½ bid, 54½ offered on Wednesday, and a third trader had the loan quoted at 54 bid, 57 offered, up from 51½ bid, 54½ offered.

Ford, GM rally helped by government funding talk

As was the case on Wednesday, the improvement in Ford and General Motors' bank debt levels was spurred on by talk that the companies might be getting funding from the government, that GMAC might become a bank so as to access the Federal Reserve's bailout plan and that the General Motors/Chrysler Corp. LLC merger discussions are progressing, one trader explained.

According to a Thursday Wall Street Journal article, six state governors sent a letter to the Treasury and the Federal Reserve requesting that the U.S. auto industry be helped with their liquidity problems.

Also, rumors from Wednesday that GMAC, the financial services company, partially owned by General Motors and partially owned by equity sponsors, is looking to become a bank holding company, were confirmed on Thursday.

GMAC Financial Services said in a news release that it is in discussions with federal regulatory authorities regarding, among other things, seeking bank holding company status so that it could obtain increased flexibility and stability, and gain expanded opportunities for funding and for access to capital.

In connection with this initiative, GMAC is considering raising and maintaining significant amounts of additional capital to meet regulatory requirements related to bank holding company status, and intends to commence a private offer to exchange a significant amount of its outstanding debt for a reduced principal amount of new debt.

As for the General Motors/Chrysler combination, on Wednesday news reports surfaced that the companies have resolved some major issues in the possible merger, moving them closer to announcing an agreement.

Cash, LCDX rise

The cash market in general and LCDX 10 both posted positive gains on Thursday as equities were up as well, according to traders.

The cash market was up around three to four points on the day, one trader remarked, while a second trader simply said that "everything seemed to feel pretty good [and] up a couple of points."

Meanwhile LCDX 10 was quoted at 87.70 bid, 88 offered, up from previous levels of 86.65 bid, 87.05 offered, traders remarked.

As for stocks, Nasdaq closed up 41.31 points, or 2.49%, Dow Jones Industrial Average closed up 189.73 points, or 2.11%, S&P 500 closed up 24 points, or 2.58%, and NYSE closed up 200.14 points, or 3.47%.

Precision Drilling launch date surfaces

Switching to the primary, Precision Drilling narrowed down timing on the general syndication launch of its proposed $1.2 billion senior secured credit facility (Ba1/BBB-) with the scheduling of an investor meeting for Tuesday, according to a market source.

Previously, it was known that the deal would be next week business, but a specific date had been unavailable.

The facility consists of a $400 million five-year revolver, a $400 million five-year term loan A and a $400 million 53/4-year term loan B, and although pricing and original issue discount have not been released yet, a source told Prospect News earlier this week that the terms are expected to be consistent with current market conditions.

RBC Capital Markets and Deutsche Bank are the joint lead arrangers and bookrunners on the deal, with RBC the administrative agent and left lead, Deutsche the syndication agent, and HSBC and TD Securities the co-documentation agents.

The banks already closed an early round of syndication to senior managing agents, the source added.

Precision Drilling leverage below two times

Proceeds from the Precision Drilling credit facility will be used to help fund the acquisition of Grey Wolf Inc. for $9.02 in cash or 0.4225 Precision trust units, subject to proration.

The maximum amount of cash to be paid by Precision Drilling will be $1.12 billion, and the maximum number of Precision Drilling trust units to be issued will be about 42 million.

Other financing for the acquisition will come from $400 million of senior unsecured notes, which is backed by a commitment for a $400 million 12-month unsecured bridge loan. The bridge loan will be reduced by the amount of Grey Wolf's convertible securities that are not converted or redeemed at close.

Pro forma for the transaction, senior leverage is 1.2 times and total leverage is 1.7 times. Equity will represent about 65% of the pro forma capital structure.

On a pro forma basis for the 12 months ended June 30, combined revenue was $1.8 billion.

Completion of the acquisition is subject to Grey Wolf shareholder and customary regulatory approvals. The transaction is not subject to approval by Precision unitholders or financing.

In September, the Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period in the proposed merger and the Grey Wolf special meeting of shareholders is scheduled for Dec. 9.

Other terms of Precision Drilling facility

In late September, the company filed and F-4 with the Securities and Exchange Commission that outlined not only the structure of the deal, but amortization, covenants and other details of the proposed deal.

According to filing, amortization on the term loan A is 5% in year one, 10% in years two and three, and 15% in year four, with the balance payable at maturity, and amortization on the term loan B is 1% per year, with the balance payable at maturity.

Financial covenants include a minimum interest coverage ratio of 3.0 to 1.0, a minimum fixed-charge coverage ratio of 1.05 to 1.0 in 2009 and 1.10 to 1.0 thereafter, and a maximum total leverage ratio of 3.0 to 1.0.

The filing also said that the facility has a $150 million accordion feature, a portion of the term loan A and the revolver will be available for borrowings in Canadian dollars, and that up to $100 million of the revolver plus any additional amounts necessary to finance any original issue discount on the term loans may be borrowed on the closing date to finance the acquisition and refinance debt.

Precision is a Calgary, Alberta-based provider of high performance energy services to the oil and gas industry. Grey Wolf is a Houston-based provider of turnkey and contract oil and gas land drilling services.

Upon completion of the acquisition, Precision Drilling will be the second largest land drilling company in North America.

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