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Leiner Health Debt Drops On News Of Lower Earnings

The term loan "B" and the bonds for Leiner Health Products took a dip last week on news of lower net sales and profits for the three months ending June 25.

The term loan "B" and the bonds for Leiner Health Products took a dip last week on news of lower net sales and profits for the three months ending June 25. After trading steadily between 101.438-102.063 for most of August, the term loan "B" dropped to between 99.0-99.5 and the bonds were down from 95 to 87.5. Leiner is owned by private equity groups, North Castle Partners and Golden Gate Capital.

In a filing with the Securities and Exchange Commission, the Carson, Calif.-based private label vitamin, mineral and supplement company reported a net loss of $4.2 million. It cites three factors for the loss: the transition in product mix from Vitamin E to joint care; $5.6 million reserved for returns and inventory writedown for banded products; and lower plant volumes from the company's inventory reduction initiative. The gross profit for the first quarter of fiscal 2006 was $22.3 million compared to $40.9 million for the same period in fiscal 2005.

"The vitamin business is very trendy, a lot of their existence is based on fads that come and go," one investor explained. "They have been into bankruptcy once before...their margins are really low and their working capital needs are pretty high." Leiner owns the marketing rights to the antihistamine Loratadine Immediate Release, which is the same ingredient in the allergy pill, Claritin. It also owns the labels: YourLife and Pharmacist Formula. Its largest customers include Wal-Mart and Costco.

The company went through Chapter 11 in 2002, after it filed with the U.S. Bankruptcy Court in the District of Delaware looking for approval of a prepackaged plan of reorganization. It emerged 49 days later. In April 2004, North Castle and Golden Gate tapped UBS, Morgan Stanley and Credit Suisse First Boston to lead a $650 million recapitalization. The facility launched in May 2004 and consists of a seven-year, $240 million term loan "B" and a five-year, $50 million revolver. At launch pricing on the deal was LIBOR plus 2 3/4% on the revolver and LIBOR plus 3% on the "B," according to Markit. There is also a $150 million bond deal. Calls to Leiner, Golden Gate and North Castle were not returned.

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