Werner bank debt rebounds from early morning plummet on termination of Home Depot contract

By Sara Rosenberg

New York, Dec. 22 - Werner Holding Co.'s bank debt began the day on a pretty sour note plummeting by around eight points on the bid side as the market showed its discomfort with the company's latest announcement that it will no longer be supplying Home Depot with extension ladders. However, the paper reversed its trajectory by the end of the day, rebounding considerably and cutting the initial bid side drop in half.

Werner's bank debt closed the day at 90 bid, 91 offered compared to Friday's levels of 94 bid, 95 offered, according to a market source. However, one source said the paper as low as 86 bid, and another source saw the paper at 85 bid, first thing in the morning.

The downturn was in response to Werner's late Friday filing with the Securities and Exchange Commission that stated: "After careful consideration and extensive analyses, taking into account the company's long-term interests, value and brand equity of Werner, the company has decided to discontinue supplying Werner branded products to The Home Depot. The company's intent, subject to practical manufacturing and market considerations, will be to discontinue supplying Werner brand climbing equipment to The Home Depot as soon as commercially possible within the first quarter of 2004 to achieve an orderly transition."

Sales of all products to The Home Depot, including extension ladders, stepladders, attic ladders and assorted accessories accounted for $161.3 million, or 31%, of the company's total net sales in 2002 and $100.1 million, or 27%, of total net sales during the nine months ended Sept. 30.

"I think people are just kind of looking at the situation and realizing that things might not be as bad as they seem to be on the surface," the market source said. "It's a manageable situation. Without Home Depot, I estimate EBITDA at the $60 to $65 million range. They have about $185 million senior secured debt - $180 million term loan, undrawn revolver and about $5 million in leases and other things. [Using those estimations], on a bank debt basis, leverage is just over three times and total leverage is just over five times."

Furthermore, the company announced in the filing that it has entered into a long-term agreement with Lowe's Cos. Inc. under which Lowe's will be the exclusive source for Werner's climbing equipment.

"Things are looking better at Lowe's than Home Depot so I think people are taking that into account," the market source added.

A similar reaction in Werner's bank debt was seen toward the end of October when the company revealed that Home Depot would no longer be purchasing aluminum and fiberglass stepladders from Werner.

Following that announcement, the Greenville, Pa., ladder company's bank debt dove a couple of points only to rebound to around 94 bid once the market had time to digest the news. Prior to that 8-K filing the term loan was quoted at par or above.

Reliant Resources Inc.'s bank debt came in a little bit on Monday, basically stabilizing from its recent run up with levels around 97¾ bid, 98¾ offered, according to a trader, compared to Friday's levels of 98 bid, 98 5/8 offered.

The paper had moved higher by about 2½ points late last week in reaction to the company's proposed amendment that would increase pricing on the facility in return for an extension of the time period to purchase assets with proceeds that are currently in an escrow account.

Reliant is a Houston electricity and energy company.

In follow-up news, Penn National Gaming Inc. closed on an amendment to its credit facility that provided for a new term loan D due September 2007 in the amount of approximately $400 million with an interest rate of Libor plus 250 basis points. Bear Stearns & Co. Inc. acted as the sole lead arranger and sole bookrunner on the deal.

The new D loan was used to replace the company's existing term loan B that had about $399.7 million outstanding and carried an interest rate of Libor plus 350 basis points. At Sept. 30, the term loan B had about $596.3 million outstanding, but with a $195.1 million prepayment plus accrued interest made by the company, the balance was brought down to the near $400 million area.

Furthermore, the company prepaid in full its term loan A due March 2008, which amounted to a payment of $10.5 million plus accrued interest.

The company made the prepayments with proceeds from a $200 million senior subordinated note offering, which was completed this month, and with cash from operations.

Under the terms of the new tranche, the Wyomissing, Pa., gaming company is permitted to raise an additional $225 million in senior secured credit to expand its Pennsylvania racetrack operations if legislation is passed permitting slot machines or video lottery terminals at these facilities. That compares to the additional $100 million in senior secured credit that the term loan B allowed for.

"Reflecting the company's strong operating trends, Penn National has aggressively paid down principal on our senior credit facility throughout 2003. The new term loan D facility brings several benefits including lower cash interest costs and greater flexibility," said William J. Clifford, chief financial officer, in a company news release.

"We are pleased that with the completion of both transactions, Penn was able to improve its capital structure while maintaining an almost earnings neutral cost of debt. We will continue to work to optimize our cost of capital and capital structure with the goals of providing growth capital at attractive rates and building value for our shareholders."

Mariner Health Care Inc. closed on its new $225 million credit facility (Ba3/BB-) consisting of a $135 million term loan with an interest rate of Libor plus 275 basis points and a $90 million revolver.

The company used the proceeds from the facility, combined with proceeds from a $175 million senior subordinated notes offering, to repay existing debt, including about $150 million of second priority secured notes and about $152 million senior secured debt.

Mariner is an Atlanta-based owner and operator of skilled nursing and assisted living facilities as well as long-term acute care hospitals.

Tyco International Ltd. closed on its $2.5 billion credit facility (Ba2/BBB-) consisting of a $1 billion 364-day revolver with a one-year term out option and a $1.5 billion three-year revolver. Banc of America Securities LLC and Citigroup Global Markets Inc. were the lead banks on the deal.

The new facility replaces the company's existing $1.5 billion undrawn 364-day revolver, which was due to expire at the end of January 2004, and the fully drawn $2 billion five-year revolver, which was due to expire in February 2006. Amounts outstanding under the terminated facilities were repaid from proceeds of Tyco's recent $1 billion issuance of 10-year notes and from partial use of its new revolvers.

"The terms and conditions of these new credit agreements are significantly improved from the company's former credit facilities, resulting in interest expense savings and increased flexibility in the company's covenants," a Tyco news release said.

Tyco is a Bermuda-based diversified manufacturing and service company.

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