Level 3 rises, Delta slips on earnings; Northwest rises with amendment; Newport oversubscribed

By Sara Rosenberg

New York, April 23 - Level 3 Communications Inc.'s term loan headed higher during market hours after the company released first-quarter numbers, and Delta Air Lines Inc. saw its second-lien term loan soften after it too announced quarterly financials.

Northwest Airlines Corp. also reported earnings on Wednesday, but its term loan seemed to be more affected by news of an amendment, since the term loan inched higher following the lender call.

In other news, Newport Television LLC's term loan has been well received by the market at original issue discount guidance that has widened out for a second time since syndication first began, and the original issue discount on Fairchild Semiconductor International Inc.'s term loan add-on emerged.

Level 3 saw its term loan gained some ground on the heels of first-quarter financials being announced, according to a trader.

The term loan was quoted at 91¾ bid, 92¼ offered, up from 90¾ bid, 91¼ offered on Tuesday, the trader said.

For the quarter, Level 3 reported consolidated revenue of $1.09 billion, an increase of 3% from $1.06 billion for the first quarter 2007, and a small decrease from $1.10 billion in the fourth quarter.

Net loss for the quarter was $181 million, or $0.12 per share, compared to a net loss of $647 million, or $0.44 per share for the first quarter 2007. In the first quarter 2007, excluding a loss on the extinguishment of debt of $427 million, the net loss would have been $220 million, or $0.15 per share.

Consolidated adjusted EBITDA was $211 million in the first quarter, an increase of 24% from $170 million for the same period last year.

"Over the last several quarters, a growing number of telecommunications industry participants have noted the growth in the demand for optical and IP services," said James Q. Crowe, president and chief executive officer, in a news release.

"We certainly benefited from that trend during the quarter, driven by growth in the delivery of video and other media over the Internet. Additionally, the pricing environment for our Core Communications Services continued to be positive.

"From an operational perspective, we believe we have substantially increased available installation capacity, which was previously a significant constraint on our ability to meet market demand for our services.

"With these operational improvements, we believe that we are on track to meet our two primary goals for 2008 - to reach free cash flow breakeven on a run rate basis during 2008, and to increase our sales and installations to rates that match customer demand for our services. With respect to the first goal, our performance has exceeded our earlier expectations and we expect to be free cash flow breakeven for the remaining three quarters of this year," Crowe added in the release.

Level 3 is a Broomfield, Colo.-based provider of fiber-based communications services.

Delta second-lien weakens

Delta's second-lien term loan dropped in trading after the company released first-quarter numbers that were heavily impacted by the rise in fuel prices, according to a trader.

The second-lien term loan was quoted at 78 bid, 80½ offered, down from 79 bid, 81 offered, the trader said.

Meanwhile, the company's first-lien loan was pretty much unchanged at 86½ bid, 88½ offered, compared to Tuesday's levels of 86½ bid, 88¼ offered, the trader added.

For the first quarter, Delta reported a net loss of $274 million, or $0.69 per diluted share, compared to a net loss of $6 million in the first quarter of 2007, excluding special and reorganization items.

Including special and reorganization items, net loss for the quarter was $6.4 billion, or $16.15 per diluted share.

Special items include a $6.1 billion non-cash goodwill impairment charge from the decline in Delta's market capitalization due to sustained record fuel prices.

Operating expenses increased 20%, or $825 million, compared to the first quarter of 2007.

The increase in net loss and operating expenses was primarily driven by a $585 million increase in costs due to higher fuel price.

In light of the significant increase in crude oil prices, the company has aggressively recalibrated its 2008 business plan with a focus on preserving liquidity. Capacity has been reevaluated, targeting reductions in or cancellations of unprofitable routes, 15 to 20 mainline and 60 to 70 regional jet aircraft are being removed from its operations by the end of the year, and revenue and productivity initiatives are beign accelerated.

"We have moved quickly to mitigate the short-term impact of higher fuel prices by further reducing domestic capacity and taking a disciplined approach to costs and cash flow. These actions have offset more than 50% of the fuel price impact," said Edward Bastian, president and chief financial officer, in a news release.

"However, we clearly need to do more. Merging with Northwest will generate over $1 billion in annual synergies, providing a more durable financial foundation for the future and giving Delta a stronger platform for profitable, long-term growth."

As for liquidity, at the end of the quarter, Delta had $2.8 billion in cash, cash equivalents and short-term investments, of which $2.6 billion was unrestricted, and $1 billion available under its revolving credit facility.

Delta is an Atlanta-based airline company.

Northwest better as amendment launches

Northwest's term loan saw positive momentum, especially after the company held a call in the afternoon to discuss an amendment proposal with lenders, according to a trader.

The term loan was quoted at 89 bid, 93 offered, up from Tuesday's levels of 87¾ bid, 89¼ offered, the trader said. On Wednesday, pre-amendment announcement, the term loan was quoted at 88½ bid, 89½ offered, the trader added.

Under the amendment, Northwest is looking to get rid of the fixed-charge coverage ratio in its credit agreement for a year, and in return for consents, lenders would get a 500 basis points amendment fee.

The company also announced first quarter earnings on Wednesday, and like Delta, which it plans to merge with later this year, numbers were highly impacted by fuel costs.

For the first quarter, Northwest reported a net loss of $4.1 billion, or $15.78 per share, compared to a net loss of $292 million in the first quarter of 2007. Reported results include a non-cash goodwill impairment charge of $3.9 billion.

Excluding non-recurring, non-cash impairment charges and losses associated with marking-to-market out-of-period fuel hedges, the company reported a first quarter net loss of $191 million versus the first quarter 2007, when it reported net income of $73 million before the impact of reorganization items and out-of-period fuel hedge gains.

Operating expenses for the quarter were $3.2 billion, excluding impairment charges, up $574 million, or 21.5% from last year as the result of a $445 million increase in year-over-year fuel expense.

Excluding fuel costs and impairment charges, operating expenses increased by $129 million year-over-year.

To respond to high fuel costs, Northwest has undertaken a number of initiatives, including plans to reduce its scheduled domestic system capacity by about 5% versus the 2008 business plan by removing from service 15 to 20 additional aircraft, accelerating the planned retirement of the three oldest, least-fuel efficient freighter aircraft, and reducing non-aircraft capital expenditures for 2008 by about $100 million.

Looking at liquidity, the company ended the quarter with $3.2 billion in unrestricted cash and $484 million in restricted cash, whereas in the 2007 first quarter unrestricted cash was $2.4 billion.

Northwest is an Eagan, Minn.-based airline company.

Newport Television grabs orders

Newport Television's $515 million term loan is oversubscribed at the newly revised original issue discount guidance that's in the 90 to 91 context, according to market sources.

Although the final discount price has yet to be determined, one source said, being that the loan is "very oversubscribed at 90 reputedly, guessing it will be 91."

At launch, the term loan was presented to investors with an original issue discount of 95. The discount was then modified late last week to the 91 to 92 area in the hopes of building momentum. And, now, the discount has moved again, this time to the 90 to 91 region.

Pricing on the term loan is Libor plus 500 bps, with a 3% Libor floor.

Newport Television's $590 million senior secured credit facility also includes a $75 million revolver.

Wachovia, Goldman Sachs and UBS are the lead banks on the deal.

Proceeds from the already funded credit facility were used to help finance Providence Equity Partners Inc.'s acquisition of Clear Channel Communications Inc.'s television group for $1.012 billion. Providence's total equity commitment was about $260 million.

The sale included 56 television stations, including 18 digital multicast stations, located in 24 markets across the United States. Also included in the sale were the stations' associated web sites, the Television Operations Center and Inergize Digital Media, which manages the television group's online and wireless initiatives.

The acquisition was first announced in 2007 and before finally closing in mid-March, Providence tried to get out of the deal, but Clear Channel took the equity firm to court, and then Wachovia tried to back out of the debt commitment.

However, over the course of the negotiations, the purchase price for Newport Television was lowered from the originally agreed upon price of $1.2 billion.

Fairchild OID surfaces

Fairchild Semiconductor's $100 million term loan add-on is being marketed to investors with an original issue discount of 99, according to a market source.

As was previously reported, the add-on, which launched this past Tuesday, is being talked at Libor plus 250 bps.

The company's existing term loan debt will remain priced at Libor plus 150 bps.

Bank of America and JPMorgan are the lead banks on the deal.

Proceeds from the term loan, along with cash on hand, will be used to retire convertible securities.

Fairchild is a South Portland, Maine, supplier of power analog, power discrete and nonpower semiconductor services.

Macrovision upsizing rumored

Macrovision's Corp.'s term loan B was surrounded by rumors on Wednesday as investors started speculating that the tranche may be upsized and that the company's high yield bond offering may be "scrapped" since the term loan B is oversubscribed, according to sources.

"We are definitely not doing the high yield roadshow," a company spokesman told Prospect News.

Macrovision was previously expecting to begin the roadshow on Tuesday for its $150 million bond offering.

When asked whether the term loan B would be upsized by $150 million, and the bonds were going away completely, the spokesman responded, "Depends. The overall deal is still being worked."

The senior unsecured notes are backed by a bridge loan commitment.

As currently structured, Macrovision's five-year term loan B (Ba1/BB-) is sized at $500 million and price talk is Libor plus 375 bps, with a 3.5% Libor floor, an original issue discount of 97 and 101 soft call protection for one year.

Covenants include a maximum leverage ratio that opens at 4.5 times and gradually moves to 2.25 times at July 1, 2010, and a fixed-charge coverage ratio that opens at 1.3 times, moves to 1.4 times at April 1, 2010 and then to 1.5 times at Oct. 1, 2010.

JPMorgan and Merrill Lynch are the joint lead arrangers and joint bookrunners on the deal, with JPMorgan the administrative agent.

Proceeds will be used to help fund the acquisition of Gemstar-TV Guide International, Inc. in a cash and stock transaction valued at $2.8 billion.

Under the acquisition agreement, each share of Gemstar-TV Guide will be converted into the right to receive, at the election of each individual stockholder and subject to proration, $6.35 in cash or 0.2548 of a share of common stock in a new holding company that will own both Gemstar-TV Guide and Macrovision.

Upon completion of the transaction, Macrovision stockholders will own about 53% of the combined company, and Gemstar-TV Guide stockholders will own about 47%.

A special meeting of Macrovision stockholders will be on April 29 regarding the acquisition.

Macrovision is a Santa Clara, Calif.-based provider of services that enable businesses to protect, enhance and distribute their digital goods to consumers across multiple channels. Gemstar-TV Guide is a Los Angeles-based media, entertainment and technology company.

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