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Interstate Recovers On Vulture Demand

09 Sep 2004

Interstate Bakeries' bank debt recovered slightly last week after demand from distressed players and the bigger banks pushed the levels higher.

Interstate Bakeries' bank debt recovered slightly last week after demand from distressed players and the bigger banks pushed the levels higher. The $122 million "B" loan traded up to the 96-96 3/4 context after dropping two weeks ago. Meanwhile, the company's $300 million revolver was quoted in the 97 1/4-98 3/4 range. Interstate's $290 million "A" and $99 million "C" tranches were also quoted in the 96-96 3/4 range.

Last week, the name traded down as some lenders were said to be selling off exposure. Some CDO investors may also have sold the name because of restrictions on holding CCC credits, a buysider explained (LMW, 9/6). Interstate's pro rata changed hands in the 90-92 context, while the "B" and "C" loans were seen in the 94-95 range.

But the name is not yet out of the woods. Interstate has a number of challenges, said Standard & Poor's credit analyst Ron Neysmith. These include structural issues and rising commodity costs, healthcare costs and changes in accounting systems, he added.

The bank debt drop came after Interstate stated it had missed an extension to file financial results for 2004 and hired restructuring firm Alvarez & Marsal to assist on accounting issues. The announcements raised some speculation among market participants about the company's seeking protection under Chapter 11. However, an Interstate spokesman responded, "the company is certainly looking at all its options. There is no intent to file."

Moody's Investors Service downgraded the company's rating to Caa1 due to the filing delay. Interstate could default on its bank debt if the company does not file its 10-K by the end of the month, Moody's states. Missing the September deadline could result in losing the ability to borrow under its senior credit facility and accelerate the payment of its outstanding debt, the release says. Interstate's liquidity is dependent upon filing its 10-K or obtaining waivers from its lenders. "We are working diligently to solve our problems," the spokesman added.

Interstate's bank deal is led by J.P. Morgan. Bank of America is syndication agent. Other lenders that signed the original agreement include The Bank of Nova Scotia, BNP Paribas, Rabobank International, SunTrust Bank and Harris Trust and Savings Bank. Ag First Farm Credit Bank, Allstate Life Insurance Company, Banco Espirito Santo, The Bank Of East Asia, Bank Of Montreal, Eaton Vance Management, Deerfield Capital Management, Calyon, Chinatrust Commercial Bank, Cobank, Comerica Bank, Commerce Bank, Farm Credit Services Of America, Franklin Templeton Investments, IKB Capital, Aladdin Asset Management, Babson & Co., Mountain Capital, National Bank Of Kuwait, PB Capital, Sankaty Advisors, RBC Leveraged Capital, Stanfield Capital Partners, The Sumitomo Trust & Banking Co., UMB Bank and Van Kampen Investments.

09 Sep 2004