Nextel Partners is cashing in on Standard & Poor's decision to raise the company's bank debt rating to investment grade, tapping the bank market for a seven-year, $550 million "D" loan that could shave 100 basis points from current pricing. S&P raised the company's rating to BBB- last week as JPMorgan was launching syndication of the deal. The company had been planning to hit the bank market in May and had asked S&P to take another look at its rating, said Amit Mehta, treasurer.
Pricing on the existing BB- rated "C" loan, which is being refinanced with the "D" tranche, is currently LIBOR plus 2 1/2%. Barry Rowan, cfo, of the Nextel Communications affiliate, said he expects the new deal to come in at least 100 basis points under that. JPMorgan and Morgan Stanley led the "C" loan for Nextel last year, but the company chose to just use JPMorgan for this facility. "We interviewed a number of banks and we have done deals with [JPMorgan]," Rowan said. "They have the execution capability. We will continue to use Morgan Stanley on other deals and they are serving as our M&A advisor."
The positive credit markets and the positive operating structure of the business were behind the decision to launch the loan in May, Rowan noted. The company has continued to grow since its inception in 1998, with the top line growing more than 30% and the bottom line "expanding dynamically," he added. He attributes the growth to the company's penetration into more markets and in growth of subscribers it now has 1.7 million. The goal, he continued, is to have $525 million EBITDA in 2005, an increase from its initial expectation of $510 million. Debt-to-EBITDA in the first quarter has declined to 3.7 times from 4.8 times for 2004 and this is expected to improve to less than 3 times this year.
"It hasn't been that we were striving to be investment grade, we were striving to be the best business we could and investment grade was a result of that," Mehta said.The company has 12 1/2% bonds that can be called in November and Rowan said that the higher rating will help Nextel lower its cost of capital by paying those off with internal revenue and from cash generation. According to S&P the company has about $1.6 billion debt outstanding.