Delta, Northwest soar on more merger buzz; Neiman up on earnings; Tropicana down with downgrade

By Sara Rosenberg

New York, March 5 - Delta Air Lines Inc. and Northwest Airlines Corp. both saw an improvement in their bank debt levels on Wednesday as people refocused on a possible merger between the two companies.

In more trading news, Neiman Marcus Inc.'s term loan got a bit of a boost after the company released second quarter numbers and Tropicana Entertainment LLC's opco term loan slid lower as the debt was downgraded.

Delta and Northwest gained some ground during market hours as news emerged that pilot union leaders from both companies were meeting on Wednesday, bringing the idea of a potential merger back into the spotlight, according to a trader.

Delta's first-lien term loan was quoted at 84¼ bid, 85¼ offered, up from 83¾ bid, 84¾ offered, and its second-lien term loan was quoted at 82 bid, 84 offered, up from 81¼ bid, 83¼ offered, the trader said.

Northwest's term loan was quoted at 84½ bid, 85½ offered, up from 84 bid 85 offered, the trader continued.

According to news reports, an agreement between the pilots on combining the two unions is the last step needed in order for a Delta/Northwest merger agreement to be reached.

In addition, on Wednesday, Delta announced that traffic increased by 6.7% in February, when compared to the same period last year, with a capacity increase of 5.6%. International traffic increased 13.1% year over year on a 12.9% increase in capacity. And, domestic traffic increased 4.1% year over year on a capacity increase of 2.4%.

Delta also said that it achieved record load factors for February. Load factors for system were 74.9%, mainline system were 75%, domestic were 77.1% and Latin were 76.7%.

"In February, international unit revenues continued to perform very well compared to the prior-year period, driven by strong improvements in yield and traffic in the Atlantic and Pacific regions," said Glen Hauenstein, executive vice president - network planning and revenue management, in a news release.

"Domestic demand remained strong, demonstrated by another month of record load factors; however, yields have been pressured by competitor pricing actions that are inconsistent with recent record high fuel prices."

Northwest also reported on Wednesday that it experienced a rise in February traffic. The company's traffic was up 5% from February 2007, with a capacity increase of 4.5%.

Northwest's February consolidated load factor was 80.2%, 0.3 points above February 2007. Its mainline load factor was 81.1%, 0.2 points above the same period last year.

Delta is an Atlanta-based airline. Northwest is an Eagan, Minn.-based airline.

Neiman better on numbers

Neiman Marcus's term loan was higher during Wednesday's market hours following the announcement of second quarter financial results, according to a trader.

The term loan was quoted at 92½ bid, 93¼ offered, compared to Tuesday's levels of 92 bid, 93 offered, one trader said, while a second trader placed it at 92½ bid, 93 offered.

For the second quarter of fiscal year 2008, the company reported total revenues of $1.37 billion, up from $1.3 billion in the prior year, and comparable revenues increased 3.7%.

Operating earnings for the quarter were $134.3 million, compared to $127.8 million for the second quarter of fiscal year 2007, and adjusted operating earnings were $152.3 million, compared to $145.9 million last year, an increase of 4.4%.

For the 26 weeks ended Jan. 26, the company reported total revenues of $2.51 billion compared to $2.34 billion last year, and comparable revenues increased 4.9%.

Operating earnings for the 26 weeks were $324 million versus $282.1 million for the comparable period a year ago, and adjusted operating earnings were $327.5 million versus to $314 million last year, an increase of 4.3%.

The company also announced total February revenues on Wednesday of $288 million, down 5.4% from February 2007 revenues of $305 million.

Neiman Marcus is a Dallas-based high-end specialty retailer.

Tropicana dips on downgrade

Tropicana Entertainment's opco term loan was once again weaker in trading as Moody's Investors Service downgraded the company's ratings, according to traders.

The opco term loan was quoted at 95¾ bid, 96¾ offered, down from Tuesday's levels of 96½ bid, 971/2, traders said.

On Wednesday, Moody's cut Tropicana Entertainment's corporate family rating to Caa3 from Caa1, revolver and term loan rating to Caa2 from B2, and senior subordinate notes to Ca from Caa3.

In addition, Tropicana Las Vegas Resort and Casino LLC's corporate family rating was downgraded to Caa1 from B3 and its term loan was downgraded to Caa1from B3.

According to Moody's, the downgrade reflects the Delaware Court of Chancery's ruling that Tropicana did breach the asset dispositions section of the senior subordinate note indenture as it relates to the transfer of title of Adamar - the entity that holds the Atlantic City property.

Failure to cure this technical default within a 60-day period will constitute an event of default and will allow the noteholders to accelerate payment of their claim.

If Tropicana is unable to cure the default, a bankruptcy filing is possible, Moody's said.

Moody's also said that even if the company can avoid default under the senior subordinate note indenture and sell its Atlantic City, Evansville and Vicksburg properties as planned, its credit profile will deteriorate significantly.

The ratings will remain on review for possible further downgrade. Moody's review will focus on the company's ability to cure the default, progress with respect to planned asset sales, and maintain adequate liquidity and operating performance.

As was previously reported, Tropicana received a notice of default and acceleration on its 9 5/8% notes last month as a result of the New Jersey Casino Control Commission's refusal to renew its license to operate the Tropicana Casino and Resort in Atlantic City.

Tropicana disagreed with the bondholders, saying that no default had occurred and, therefore, the acceleration was invalid, which is how the disagreement ended up in court.

A forbearance agreement from senior credit facility lenders regarding the Atlantic City license issue was obtained back in December.

The Atlantic City property is up for sale. The company is also planning on selling its casino property in Evansville, Ind., and its Vicksburg, Miss., casino. Proceeds from all of these sales are expected to be applied toward repaying outstanding senior credit facility debt.

Tropicana Entertainment is a Fort Mitchell, Ky.-based gaming entertainment provider.

LCDX heads up

LCDX 9 was stronger on Wednesday, and the cash market felt firm as well but still in relatively light volume, according to a trader.

The index was quoted at 92.30 bid, 92.40 offered, up from 91.95 bid, 92.05 offered, the trader said.

Equities were also better during the session, with Nasdaq up 12.53 points, or 0.55%, Dow Jones Industrial Average up 41.19 points, or 0.34%, S&P 500 up 6.95 points, or 0.52%, and NYSE up 70.97 points, or 0.80%.

According to the trader, equities being stronger does help the index, although over the past two weeks, the two don't seem to be as tied together as they were before - meaning that Wednesday's movement may have been more a function of market technicals than sympathy with stocks.

"Technical pressure of guys putting on shorts has been alleviated for the time being," the trader added.

Rock-Tenn closes

Rock-Tenn Co. closed on its $1.2 billion five-year credit facility (Ba2/BBB-), according to a news release.

The facility consists of a $450 million five-year revolver priced at Libor plus 250 bps, with a 40 bps unused fee, a $550 million five-year term loan A priced at Libor plus 250 bps, and a $200 million six-year term loan B priced at Libor plus 275 bps, with a 3% Libor floor, that was sold at an original issue discount of 99.

The revolver and term loan A were offered with an upfront fee of 1 bps per $1 million commitment.

During syndication, the term loan A was upsized by $200 million from $350 million and the company's bond deal was downsized to $200 million from $400 million since the term loan A was met with a good amount of lender interest, and the Libor floor was added to the term loan B.

The term loan B, which was open to banks and institutional investors, was carved out of the term loan A tranche, which was originally expected to be sized at $550 million, prior to the deal's bank meeting in late January as a result of reverse inquiry from institutional accounts.

At launch, price talk on the term loan B was labeled as Libor plus 275 bps to 300 bps, including spread and original issue discount. Specifics on the B loan pricing emerged during syndication based on where traction occurred.

Wachovia Bank, Bank of America and SunTrust Bank acted as the lead banks on the deal.

Proceeds from the credit facility and the 9¼% senior notes were used to fund the acquisition of Southern Container Corp., to refinance the company's existing credit facilities and to provide in excess of $200 million of undrawn capacity.

Rock-Tenn bought Southern Container, a Hauppauge, N.Y., privately held containerboard manufacturing and corrugated packaging business, for $851 million in cash.

Rock-Tenn is a Norcross, Ga., manufacturer of packaging products, merchandising displays and bleached and recycled paperboard.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.