Nextel firms as it stands behind guidance; CMS lower on Anderson flap, looming deadline

By Paul Deckelman and Paul A. Harris

New York, June 11 - Nextel Communications Inc. debt was solidly higher on Tuesday after the wireless operator reaffirmed its earlier guidance on expected cash flow and subscriber additions; on the downside, CMS Energy shares and bonds were in retreat after former auditor Arthur Andersen said that its opinions on CMS' financial results for the past two years cannot be relied upon and Fitch Ratings said it might downgrade the credit, which faces a looming deadline for renewing a credit facility. Late in the day Moody's Investors Service went further and cut CMS two notches.

Meanwhile the primary market bandied about price talk on five of the six deals that are set to price Wednesday and Thursday.

Also terms were heard on an emerging markets corporate deal from Indonesian issuer Indofoods, which priced a Reg S offering of $280 million.

Of the five deals for which price talk was heard Tuesday, the Fleming Cos.' $200 million of eight-year senior notes (Ba3/BB-/BB) via Deutsche Bank Securities Inc. were talked the tightest, at 8 7/8%-9 1/8%. The deal is expected to price Thursday.

Mike Difley, vice president & portfolio manager of the American Century High Yield Fund allowed that Fleming's story is notable because the market seems have assimilated the notion that Fleming is weathering the demise of its biggest customer, Kmart, which filed for US bankruptcy court protection from its creditors on Jan. 22.

"I own some Fleming bonds already, so I have not decided whether or not I'll get involved in the new deal," Difley told Prospect News on Tuesday.

"I think people like the fact that they're diversifying their business with the (Core-Mark) acquisition they're doing here," Difley added. "And the Kmart business is now going to comprise only 16% and it's getting less. I think people are getting comfortable that they can manage around that situation, even if it gets worse."

In addition to Fleming, Difley nodded to Spartan Stores, whose $200 million of 10-year senior subordinated notes (B3/B) are poised to price during the week of June 17 via Lehman Brothers, and to Roundy's Supermarkets, which priced an upsized $225 million (B2/B) on May 23 to yield 8 7/8%. While they may represent safe havens for investors, the deals from these food wholesalers are also notable for their tight pricings, he said.

Although Fleming generated the tightest price talk heard on Tuesday, even tighter talk was heard the previous day on JLG Industries' $150 million of 10-year senior subordinated notes (Ba2/BB+), via joint bookrunners Wachovia Securities and Credit Suisse First Boston. Price talk on the deal from the McConnellsburg, Pa. producer of hydraulic reaching and digging equipment is 8 3/8%-8 5/8%.

Difley also said he was having a close look at the JLG Industries deal, which is poised to price Wednesday.

"It's an industry leader," the portfolio manager said, "And it has managed to navigate pretty well through the downturn.

"It sort of appears to be a survivor as this industry shakes out a little bit in the downturn. And the ratings are indicative of a higher quality credit."

Difley also said he was taking a look at Irvine, Calif. eye-care products manufacturer Advanced Medical Optics, Inc., which is being spun off from Allergan.

Price talk of a yield in the 9½% area was heard Tuesday on its $175 million of eight-year senior subordinated notes (B3/B) via joint bookrunners Merrill Lynch & Co. and Banc of America Securities. The deal is set to price Thursday morning.

The contact lens and cataract surgery products that the company makes, Difley said, position it well to receive legions of baby boomers facing the vision issues that are part of the aging process.

Price talk was also heard Tuesday on AmeriCredit Corp.'s $300 million of seven-year senior notes (Ba1/BB-) via joint bookrunners Bear Stearns & Co. and JP Morgan. Talk on that deal is 9%-9¼%, according to a syndicate source. As with JLG Industries, AmeriCredit is expected to price Wednesday.

Plymouth, Mich. metal automotive industry parts designer Metaldyne Corp. also circulated talk on its deal. Talk of 9¾%-10% was heard on its $300 million of 10-year senior subordinated notes (B), which are set to price Thursday via joint bookrunners Credit Suisse First Boston, JP Morgan and Deutsche Bank Securities.

And from the far side of the Atlantic Ocean price talk of 9¾%-10%was heard early Tuesday on the Rule 144A/Reg S deal from The Big Food Group, plc. Its £150 million of 10-year senior notes (Ba3/BB-) are expected to price Thursday, via joint bookrunners Barclays Capital and UBS Warburg.

One eurobond market observer told Prospect News Tuesday that while the investment banks in Europe would certainly welcome the volume of business that lately has been forming ranks on the U.S. high yield primary market forward calendar, nothing remotely resembling it is likely to surface in the near term.

The only other offering this source acknowledged tracking is Herbalife International's $220 million equivalent of eight-year senior subordinated notes (B3/B) in dollars and euros, via UBS Warburg, now roadshowing in the U.S. and set to price late in the week of June 17.

This source did specify that one or two more eurobond deals are likely to surface before high summer.

Finally on Tuesday terms were heard on an emerging markets corporate deal from Indofood International Finance, Ltd. Its Reg S $280 million of five-year senior notes (B3/B) priced at 99.05 to yield 10 5/8% via Credit Suisse First Boston.

One emerging markets source took issue Tuesday with comments made in the Prospect News High Yield Daily during the week of June 10. One of this official's counterparts on the sell-side had said that emerging markets corporates business figures to be slow in the near term because prospective issuers could do better at the bank.

"The bank loan market is only for the guys who are pretty strong," the emerging markets observer said Tuesday.

Pointing to Mexico's Corporacion Durango, whose $175 million of seven-year senior notes (B3/B+) are set to price on June 19, via Morgan Stanley, this official questioned whether the bank was open to this issuer.

"Durango is a B3 credit. I don't think the bank market or the peso market are available for a Durango."

Single-B credits, this emerging markets sell-side source said, remain the province of high yield.

In secondary trading, Nextel "was a little stronger" Tuesday, a trader said. "Nothing dramatic, but it was a real bid there." He quoted Nextel's benchmark 9 3/8% senior notes due 2009 up about 1½ points to 64.25 bid/65 offered.

Another trader quoted the bonds around the same level, up from prior levels around 62 bid/63 offered. Nextel's zero-coupon notes due 2008 were quoted about two points higher at 60.

Its Nasdaq-listed shares meantime rose 63 cents (16.62%) to $4.42. Volume of about 25 million shares was nearly double the average.

Nasdaq firmed after the Reston, Va.-based No.5 U.S. wireless operator reaffirmed its earlier cash-flow and new subscriber predictions for 2002. Nextel predicted that its EBITDA for 2002 (earnings before interest, taxes, depreciation and amortization, the key bond market measure of a company's cash flow generation and its ability to service debt) would come in at least $2.5 billion, while it would end the year with 2 million domestic new-subscriber additions.

Nextel's willingness to stand by the goals it had previously laid out stands in stark contrast to the situation with another wireless name - Atlanta, Ga.-based Sprint PCS affiliate Airgate PCS inc., whose debt and shares slid badly last week after it sharply revised downward its anticipated new-subscriber numbers for the current quarter. AirGate's revision - seen as a barometer for the health of the overall telecommunications sector - helped drag down other PCS operators, such as Alamosa PCS, U.S. Unwired and Horizon PCS; even Nextel itself had declined in sympathy, down to lows around 60 bid for its benchmark issue.

Another sizable mover in the communications constellation on Tuesday was Adelphia Communications Corp., whose debt continued to slide in the wake of Monday's Chapter 11 filing by its Century Communications Corp. subsidiary.

"The world seems to be looking at Adelphia today," a trader said, characterizing its bonds as "a little softer and quoting its 10 7/8% notes several points lower at 47.5 bid/48.5 offered. Another trader quoted the bonds in that same context, saying they had weakened from around 52.5 bid/54.5 offered on Monday. Century's 8 7/8% notes due 2007 meantime fell to 35 bid from prior levels around 42 on Monday, when the unit sought protection from its bondholders and other creditors via a filing with the U.S. bankruptcy court in Manhattan.

Coudersport, Pa.-based Adelphia - currently under investigation by the Securities and Exchange Commission and facing a looming Friday deadline for making $50 million in overdue bond interest payments to avoid a default - announced that Peter Venetis, the son-in-law of ousted chairman and chief executive officer John Rigas, had resigned from the board. Venetis was the last Rigas family holdout on the nine-member board; the elder Rigas and three Rigas sons had quit the board last month and gave up their executive positions as they surrendered control of the sagging company, which the elder Rigas had founded in 1952.

Adelphia rival Charter Communications, a trader said, was "still sloppy," reflecting sector weakness in the wake of the Adelphia debacle, but appeared to stabilize late in the session. He quoted the St. Louis-based cabler's 8 5/8% notes as having drifted as low as 77 bid/79 offered early in the session, before it firmed off those lows to close at 80 bid/81 offered; Charter debt on the whole, he said was unchanged to off only a point at day's end.

Another cable operator, Cablevision, likewise firmed off its Adelphia-linked day's lows, its 7 7/8% notes due 2011 "regaining their footing" to end at 91 bid/92 offered, up from 89 bid/90 offered at the opening. Woodbury, N.Y.-based Cablevision, he said, "had a bid to it."

On the equity side of the ledger, Goldman Sachs was reported to have issued a bullish research note about the non-Adelphia cable operators, including both Charter and Cablevision, saying that they likely would not suffer from the kind of accounting problems as Adelphia - under investigation for billions of dollars of loans and other alleged self-dealing transactions said to have been initiated by the Rigas clan.

Cablevision also moved to differentiate its accounting practices from Adelphia's.

CMS Energy Corp. bonds were in retreat, after former auditor Arthur Andersen said that its opinions for the company's 2000 and 2001 results could not be relied upon; Dearborn, Mich.-based power generator and trader CMS, which is in the process of restating those results, said in a statement that Ernst & Young LLP will instead audit the restatements once the investigation is complete. CMS had announced last month that it would replace Andersen - which has recently been dumped by a number of companies in the wake of its role in the Enron Corp. collapse - but at the time the strategy was to have Andersen complete the current restatement.

CMS was forced to restate those results after having admitted to recording between $4 billion and $5 billion of bogus "round-trip" electricity contract trades with other power producing firms, which produced no economic benefit but which artificially inflated its trading volume and revenue statistics.

CMS is also faced with a looming June 17 deadline for rolling over a $450 million bank credit line; the Fitch ratings service said it might downgrade the company's current BB+ rating if a satisfactory outcome were not seen.

CMS's 9 7/8% notes due 2007 swooned to 95.5 bid/96.5 offered from prior levels at 101.5 bid/102.5 offered. Its 7½% notes due 2009 lost 2.5 points to close at 88.5 bid. CMS shares lost $1.68 (10.06%) in NYSE dealings to $15.11.

Other power producers were also on the slide, with Calpine Corp.'s 8½% notes due 2011 dipping to 76.5 bid/77.5 offered, a two point loss, and AES Corp.'s 9½% notes falling three points to 68 bid. Neither company has been implicated in the kind of sham trades bedeviling CMS.

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