Nextel Communications trades up on positive Q1 earnings

By Sara Rosenberg

New York, April 17 - Nextel Communications gained a couple of points in secondary trading Wednesday in response to the release of favorable first quarter earnings news. According to a trader, the company's loan may have traded as high as 87, a nice jump compared to Tuesday's levels of 84 to 841/2.

The Reston, Va. digital wireless communications company announced financial results for first quarter 2002, including a 22% increase over last year's first quarter domestic revenues to $1.96 billion and a 66% increase in domestic operating cash flow to $586 million, before a restructuring charge, compared to $353 million in last year's first quarter.

The domestic subscriber number increased by 502,000 in the first quarter to approximately 9.2 million, a company press release said.

The consolidated loss attributable to common stockholders was $654 million or $0.82 per share during the first quarter of 2002 and domestic capital expenditures were $474 million, a decrease of 26% from the $640 million in the first quarter of 2001, the release said.

"We are delivering on our stated financial objectives. We are growing our subscriber base and market share with the right kind of customers, improving our cash flow and scaling our capital expenditures," said Paul Saleh, Nextel's executive vice president and chief financial officer. "We believe that the majority of the benefits of our cost reduction initiatives are still ahead of us. This gives me great confidence that we will meet or exceed our financial goals for this year and that we are on track to reach positive free cash flow by 2004 or earlier."

UBS Warburg high-yield cable and telecom analyst Aryeh Bourkoff reiterated his recommendation on Nextel's bank loan in a report Wednesday.

"We continue to view the company's bank debt as a defensive and attractive way to play the Nextel credit," Bourkoff wrote. "We note that leverage through the banks is approximately 1.9x."

Nextel's revenues were in line with UBS' $1.97 billion estimate and EBITDA of $586 million beat its estimate of $543.8 million.

The 502,000 subscriber gain fell below UBS' forecast of an increase of 525,000 while the $474 million domestic capital expenditures were far below UBS' estimate of $600 million.

As of March 31, Nextel Communications had $3.1 billion in cash and $1.5 billion available under a senior secured credit facility.

"We estimate that the company is currently in compliance with all of its covenants, but must grow EBITDA to $709mm in 1Q03 in order to meet its total debt leverage covenant in its credit facility of 5.0x," the UBS report said. "At March 31, LQA leverage through the company's bank debt and senior notes was 6.37x, down from 6.83x at December 31, 2001."

In primary news, market talk is that J.C. Penney Co. is working on and may have launched a $1.5 billion revolver on Wednesday. JPMorgan Chase and Credit Suisse First Boston are said to be co-lead arrangers for the deal.

The revolver matures in three years and was priced with an interest rate of Libor plus 175 basis points, according to a market source. Security for the new credit facility is company inventory.

Proceeds will be used to refinance the Plano, Tex. retailer's previous $1.5 billion revolver, which is scheduled to mature on Nov. 21, 2002.

"There is no institutional component to the loan," the source said. "It's all banks, no funds."

Both the company and the syndicate were not immediately available to confirm information on the new loan.

In other news, Stoneridge Inc. held a bank meeting on Tuesday for its new $200 million credit facility (BB), according to market sources. National City Bank and Deutsche Bank are co-lead arrangers for the offering. Two other banks are listed as tier ones, but they have not been identified, a financial professional said.

The loan consists of a $100 million five-year revolver with an interest rate of Libor plus 300 basis points and a $100 million six-year term B tranche with an interest rate of 350 basis points. There's a utilization fee of 25 basis points on the revolver if less than 50% of available borrowings are drawn.

According to the financial professional, the syndicate is offering B investors an upfront fee of 12.5 basis points.

"It sounds like it's going well," the financial professional said. "The revolver is almost done. They've gotten four banks to invest in the revolver already. Of the four only two have been identified and those are the two lead banks on the deal. And the B tranche will likely be oversubscribed."

Stoneridge, based in Warren, Ohio, designs and manufactures electrical and electronic components, modules and systems for the automotive, truck, agricultural and off-road vehicles market. The company would not confirm any information on the loan and the syndicate was not immediately available.

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