Nextel Finance Co.'s new five-year, $4 billion revolver was quoted at 98 3/4-99 1/4 after allocation last week, with a couple of street trades at these levels. But investors were split on whether the price would hold. One investor looking at the name was skeptical it could stay just below par, arguing the credit default swap for Nextel is 153 basis points, which is more than 100 basis points higher than the yield on offer for buying the loan. With this type of differential, he could not see the rationale for Nextel to be quoted so high and believed the offer would go downhill.
A majority of term loans are being bid above par, but this is a massive revolving credit, which suits banks more than institutional players, he said. Another investor countered though that the levels seem fair and dealers said trades were being struck.
A Nextel spokeswoman declined comment on the pricing and trading of the credit, but she said the new loan reduces the cost of servicing Nextel's debt. J.P. Morgan and Citigroup lead the credit, which replaced a revolver and "A" loan totaling $2.6 billion. Other banks that have signed on include Bank of America, Scotia Capital, Wachovia Securities and Barclays Capital.
Nextel has borrowed $1 billion of the new facility. The amended credit agreement includes simplified covenants, collateral and guarantee release provisions and other features typically found in facilities entered into by investment-grade borrowers.
Commenting further on the new credit, the spokeswoman said Nextel believes it "has the physique of an investment-grade organization and we are encouraged by the ongoing upgrades and hope and expect we will be moved to investment-grade sooner rather than later. When that occurs, the debt will not need to be secured." Nextel also has a $2.2 billion "E" loan that matures in 2010.