Masonite up on amendment hopes; Blockbuster, Alltel, ServiceMaster, First Data react with numbers

By Sara Rosenberg

New York, May 15 - Masonite International Inc.'s term loan jumped up following the release of numbers as the results created an expectation among lenders that the company may need to seek an amendment shortly.

Also in trading, Blockbuster Inc., Alltel Communications Inc. and ServiceMaster Co. all saw their bank debt head higher on favorable earnings, while First Data Corp. saw its debt move lower as the company revealed in its earnings announcement that it might lose some business in 2009.

Masonite's term loan also traded up following the release of earnings; however, it wasn't because the numbers were good, but rather because people are banking on an amendment being necessary in the near-term, according to sources.

The term loan was quoted at 92 bid, 93 offered, sources said. By comparison, on Wednesday, one trader was quoting the paper at 90 bid, 92 offered and a second trader was quoting it at 91 bid, 92 offered.

For the latest 12 months ended March 31, Masonite's adjusted EBITDA declined by 8.9% to $290.9 million from $319.4 million for the 12 months ended Dec. 31.

The company's net debt to trailing 12 months adjusted EBITDA ratio was 6.71 times at March 31, compared to 6.00 times at Dec. 31, and the covenant maximum is 7.00 times - meaning they're pretty close to running into compliance trouble here, a market source explained.

In addition, the company's cash interest coverage ratio was 1.76 times at March 31, compared to 1.91 times at Dec. 31, and the covenant minimum is 1.65 times, so they're pretty close to non-compliance here as well, the market source continued.

"They're possibly going to break covenants and will need an amendment. The economy isn't going to get any better for them in the next six months. On average, for an amendment, pricing increases 200 basis points and lenders get a 50 bps fee," the source remarked, adding that investors are probably buying into the term loan now so as to capitalize on the potential for extra pricing, which is the why the loan traded higher Thursday.

For the first quarter, the company's sales were $464.4 million, a decline of 18.4%, compared to sales of $569.4 million in the first quarter of 2007, operating EBITDA decreased 36.5% to $46.7 million from $73.5 million last year, and adjusted EBITDA declined 34.7% to $53.5 million from $81.9 million last year.

"Continued volume weakness resulting from the ongoing downturn in the U.S. housing market negatively impacted our first-quarter results," said Fred Lynch, president and chief executive officer, in a news release.

"We continue to take aggressive actions to right size our business, both in terms of capacity and staffing levels, while simultaneously driving operational efficiencies, reducing controllable costs, and effectively managing our cash. These actions combined with our increased focus on innovation, are designed to position the company for great success when the market rebounds."

Masonite also announced that following the end of the first quarter, it borrowed the remaining $236 million available from its $350 million senior secured revolving credit facility.

The company said that although there is no immediate need for the funds, in light of current financial market conditions, the draw was made to provide it with greater financial flexibility.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

Blockbuster rises

Blockbuster's term loan B gained some ground during the session after positive first-quarter numbers were released, according to a trader.

The term loan B was quoted at 95 bid, 96½ offered, up from Wednesday's levels of 94¼ bid, 95¾ offered, the trader said.

For the first quarter, the company reported net income of $45.4 million, or $0.20 per diluted share, an improvement of $94.4 million as compared with a net loss of $49 million, or $0.27 per share, for the first quarter of 2007.

Total revenues decreased were $1.39 billion, down 5.4% from $1.47 billion last year, with Blockbuster attributing the drop to fewer company-operated stores.

Gross profit for the quarter decreased $20.8 million to $741.7 million, as compared to last year primarily as a result of the decline in international gross profit, reflecting the impact of the divestiture of 217 Gamestation stores and the termination of a Brazilian franchise agreement.

Operating income for the quarter totaled $70.2 million, an increase of $89.6 million when compared to an operating loss of $19.4 million for the same period last year.

The improvement in profitability drove a $124.5 million increase in cash flow provided by operating activities for the first quarter of 2008 to a deficit of $19.5 million from a $144 million deficit last year.

Free cash flow for the first quarter was negative $39.4 million, an improvement of $115.6 million when compared to the same period last year.

And, adjusted EBITDA was $114.5 million in the first quarter, an increase of roughly $91 million from $23.3 million last year.

"The significant improvement in our first-quarter results demonstrates the underlying strength of our core rental and emerging retail business," said Jim Keyes, chairman and chief executive officer.

"Going forward, we are confident we can continue to grow our core business, which will enable us to focus on aggressive development of our digital offerings. Our ability to provide convenient access to both physical and electronic media entertainment will provide Blockbuster a meaningful competitive advantage and allow us to create enhanced shareholder value over the long-term," Keyes added in the release.

Blockbuster is a Dallas-based provider of in-home movie and game entertainment.

Alltel active on earnings

Alltel's bank debt was active and higher on Thursday as it came out with first-quarter numbers that investors found to be favorable, according to traders.

The term loan B-2 was quoted at 90 7/8 bid, 91¼ offered, up from 89¾ bid, 90½ offered and the term loan B-3 was quoted at 91½ bid, 92 offered, up from 90¾ bid, 91¼ offered, traders said.

For the quarter, the company achieved record customer growth, adding more than 1 million gross customers for the second consecutive quarter, and net customer additions also hit a new high with a 63% increase year over year.

Revenues were $2.3 billion, an 11% increase from the same period a year ago.

Net loss for the quarter was $125 million, due primarily to significant increases in interest costs and depreciation and amortization expense following the completion of its leveraged buyout.

And, consolidated EBITDA for the quarter was $847 million, an 18% increase from the same period a year ago.

Alltel is a Little Rock, Ark., provider of wireless voice and data communications services.

ServiceMaster inches up

ServiceMaster was yet another company to release earnings for the quarter ended March 31, and its term loan reacted favorably to the news, according to a trader.

The term loan was quoted at 84¾ bid, 85¾ offered, up from 84 3/8 bid, 85 1/8 offered, the trader said.

For the quarter, operating revenue was $632 million, down from $673 million in the same period in 2007. Revenue in the quarter decreased partly as a result of deferred revenue at its fair value in connection with purchase accounting. Excluding the impact of purchase accounting, revenue for the first quarter decreased $19.5 million from 2007 levels.

Operating loss was $10 million, compared to operating income of $25 million last year, and net loss was $76 million, compared to net income of $8.5 million last year.

Loss from continuing operations before income taxes was $106.1 million in the first quarter, compared to income from continuing operations before income taxes of $16.8 million in 2007. The decrease in income from continuing operations primarily reflects the net effect of increased interest expense and costs associated with the company's leveraged buyout.

And, adjusted EBITDA was $46.9 million in the quarter compared to $47.4 million last year.

ServiceMaster is a Downers Grove, Ill., provider of services to residential and commercial customers, including lawn care and landscape maintenance, termite and pest control, home warranties, disaster response and reconstruction, cleaning and disaster restoration, house cleaning, furniture repair and home inspection.

First Data slides

First Data's term debt weakened in trading after the company announced in its 10-Q filing that its alliance with Chase Paymentech may end in 2009, according to a trader.

The company's term loan B debt was quoted at 93 bid, 93½ offered, down from 94½ bid, 95½ offered, the trader said.

The Chase Paymentech alliance is First Data's largest merchant alliance. Chase Paymentech is 51% owned by J.P. Morgan Chase Bank and 49% owned by FDC. The current term of the existing alliance agreement expires in 2010; however, JPMorgan had the right to terminate the alliance due to the change of control upon the closing of First Data's leveraged buyout.

First Data has extended the time period to exercise this right to allow for further discussions regarding the alliance, it expects the alliance to end prior to its existing expiration date in 2010 - likely in 2009.

Upon expiration, First Data would incur an obligation associated with taxes, which based on preliminary estimates and assumptions, could be in excess of $200 million.

"Chase Paymentech is winding their business with First Data starting in 2009 and that's a significant amount of their EBITDA," the trader said. "It generated about $746 million in EBITDA in 2007."

As for First Data's results for the quarter ended March 31, revenues were $2.1 billion, up from $1.8 billion last year, operating profit was $196.6 million compared to $195.4 million last year, and net loss was $221.7 million versus net income of $175.2 million last year.

First Data is a Greenwood Village, Colo., provider of electronic commerce and payment services.

Cash, LCDX stronger

The cash market in general and LCDX 10 were both better on Thursday as volume picked up, according to a trader.

The cash market was firm across the board with levels stronger by about a quarter of a point, the trader said.

And, the index was quoted at 99.35 bid, 99.50 offered, up from 98.95 bid, 99.10 offered, the trader added.

PQ launches

PQ Corp. held a bank meeting on Thursday afternoon to launch its proposed $1.76 billion credit facility, which had already received a lot of interest during an early syndication round, according to a market source.

And, by around midday, it was heard that "substantially all of the term loans are done," the source added.

The facility consists of a $200 million revolver (B+) priced at Libor plus 325 bps, a $1.1 billion first-lien term loan (B+) priced at Libor plus 325 bps and a $460 million second-lien term loan (B-) priced at Libor plus 650 bps.

The first-lien term loan is being talked with an original issue discount of 91 and the second-lien term loan is being talked with an original issue discount of 87.

The second-lien term loan has call protection of 102 in year one and 101 in year two.

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

Proceeds from the credit facility, which funded last year but never syndicated, were used to help finance the acquisition of the company by Carlyle Group in a transaction valued at $1.5 billion.

Following the buyout, PQ was combined with Ineos' silicas business so that Carlyle owns about 60% of the company and Ineos owns about 40%.

PQ is a Malvern, Pa., producer of specialty inorganic chemicals, catalysts and engineered glass products.

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