Nextel, American Cellular loans drop in secondary on Moody's reviews

By Sara Rosenberg

New York, April 11 - The communications sector experienced difficulties in the secondary bank loan market Thursday as prices dipped on most loans during trading hours, a trader said. Nextel Communications, Inc. and American Cellular were the two most notably troubled loans, due in large part to Moody's Investors Service placement of the companies' ratings on review for possible downgrade.

Nextel's loan, issued through Nextel Finance Co., dropped in price by about ¾ point on news that Moody's placed the company's senior secured credit facility rating of Ba2 on review for possible downgrade as a result of the company's upcoming increased cash requirements. According to a second trader, the term loan B tranche and term loan C tranche were trading at about 83¼ to 84.

According to Moody's, the company has $3.4 billion in cash and $1.5 billion in revolving credit. However, Nextel's term loans begin to amortize in the fourth quarter of this year and the revolver is scheduled to be reduced in size. Also, cash interest payments on three outstanding note issues are due in 2003 and two of the three preferred stock issues are scheduled for dividend payments soon.

"To meet these increasing cash requirements, Nextel will have to continue grow EBITDA at a rapid pace which will prove challenging in the very competitive and maturing wireless marketplace," the Moody's release said.

In response to the Moody's review, the company told Prospect News that it has been focusing on growth and creating a healthy business. "Hopefully that will be recognized by Wall Street," the company source added.

American Cellular, according to the first trader, was down as well, however, he did not have exact levels immediately available. "I would guess its down by about two points," he said.

Moody's placed American Cellular's $1.35 billion secured credit facility rating of Ba3 on review for possible downgrade because of what it said was the company's poor financial performance and the need for covenant relief on its credit facility from its lenders before the end of June.

"Given the underperformance of the company, the very high leverage with debt to EBITDA of approximately 10 times, the relative lack of support from AT&T Wireless, as well as the current valuations for rural cellular carriers, the likelihood of a multiple notch downgrade is high," Moody's said in a release.

The trader went on to explain that the communications sector has been experiencing difficulty for quite a while due to a large amount of competition and a "rosy outlook in 1999 when the companies had easy access to capital."

In primary news, National Dairy Holdings, a milk producing company in Texas, held its bank meeting regarding a new $425 million credit facility, which is scheduled to close by the end of April. Wachovia is the sole lead arranger and administrative agent for the deal.

The new credit facility consists of three tranches, a syndicate source said. The $125 million revolver matures in six years, has an interest rate of Libor plus 225 basis points and a commitment fee of 50 basis points. The $125 million term A matures in six years and has an interest rate of Libor plus 225 basis points. The $175 million term B matures in seven years and has an interest rate of Libor plus 275 basis points.

"My guess is it will probably go OK," a market professional said. The fact that it's "a dairy cooperative is what will make it challenging. Chances are the deal is priced at market clearing rates and as long as people can work through credit issues, it should be fine. Investors are open to deals with good structure. We should get more of a read within the next couple of days," he added.

In other news, RailAmerica Inc. is scheduled to hold a bank meeting on April 17 for its new $475 million credit facility, which is expected to close in May, according to a syndicate source. UBS PaineWebber and Morgan Stanley Dean Witter are joint lead-arrangers for the deal.

The loan consists of a $100 million six-year revolver with an interest rate of Libor plus 200 basis points and a $375 million seven-year term B tranche with an interest rate of Libor plus 275 basis points, the syndicate source said. There is a commitment fee of 50 basis points on the revolver. All company assets will be used to secure the loan, the source said. Proceeds will be used to refinance existing debt.

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